As the name suggests, High low bands are two bands surrounding the underlying’s
price. These bands are generated from the triangular moving averages calculated
from the underlying’s price. The triangular moving average is, in turn, shifted
up and down by a fixed percentage. The bands, thus formed, are termed as High low
bands. The main theme and concept of High low bands is based upon the triangular
moving average. So, let’s take a look at the triangular moving average and its features.
Triangular Moving Average
Just like other moving averages, a triangular moving average takes into account,
the average price of a specific stock over a particular period of time. Triangular
moving averages are a bit better than the rest of them because of their ability
to generate sharp signals. A triangular moving average is smoother than the others
because it is averaged twice. But, why is the triangular moving average used more
often? Smoothing of an average will make the specific moving average to be less
responsive. Why is it more used when it has more waves than the other standard moving
Practically, it has been observed that triangular moving averages appear to be more
responsive to price changes than the other standard moving averages. That is the
reason these are used more often to judge price changes.
Triangular moving average can simply be defined as the average of simple moving
averages over a specific period of time. Triangular moving averages are calculated
1. First, calculate the simple moving average of the particular stock:
SMA = (P1 + P2 + P3 ………. + Pn) / n
SMA = Simple moving average,
Pn = Price of nth bar,
N = Number of bars or time period.
2. Now, averaging the simple moving averages gives us the triangular moving average:
TMA = (SMA1 + SMA2 + SMA3 ……….. + SMAn) / n
Here, TMA = Triangular moving average.
A simple moving average and a triangular moving average differ in their smoothness
and way of generating signals. It is said that a triangular moving average is little
retarded in generating signals which is wrong in most cases. A triangular moving
average is more responsive to price signals than many other moving averages. Interpretation
of triangular moving average is just like the other moving averages. When the price
crosses the TMA wave line on the upside, it is a signal that the stock will remain
in an uptrend in the coming days and vice-versa. Triangular moving average finds
its application in High low bands. The bands, both high and low are generated from
the triangular moving average of a particular stock.