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Just saw a recent post on the NinjaTrader forum on Acceleration Bands. There is always someone to code it, but let us have a look at what it is:

UpperBand = SMA calculated from High * (1 + k * (High - Low)/ (0.5* High + 0.5* Low)
LowerBand = SMA caclculated from Low * (1 - k * (High - Low)/ (0.5* High + 0.5* Low)

Instead calculating the formulae from High and Low, you can calculate them from the Median and the Range of the bar, which results in

UpperBand = (Median + 0.5*Range) * (1 + k * Range / Median) = Median + (0.5 + k + 0.5*k*Range/Median) * Range
LowerBand = (Median - 0.5*Range) * (1 - k * Range / Median) = Median - (0.5 + k - 0.5*k*Range/Median) * Range

This is an interesting finding, because we notice two things

- The formula is very similar to the formula of traditional Keltner Channels
- The bands are slightly assymetric, as the volatility is adjusted to price

Comparison with Keltner Channels

The midline of the Keltner Channel is an SMA calculated from the Typical Price, the (added) midline of the Acceleration Band is an SMA calculated from the Median or Bar Center. The difference can be neglected.

Now if I compare the formula for the upper band prior to smoothing, I get

Acceleration Band -> UpperBand = Median + (0.5 + k + 0.5*k*Range/Median) * Range
Keltner Channel -> UpperBand = Typical + multiplier * Range

If I select a multiplier = 0.5 + k the formula for the upper band of the Acceleration Bands becomes

Acceleration Band -> Upper Band = Median + (multiplier + 0.5*k*Range/Median) * Range

The only remainig difference is the term 0.5*k*Range/Median. Even on a daily chart, for which the channels have been developed, the term Range/Median will rarely exceed 2% over a period of 20 bars. Further we know that k = multiplier - 0.5 < multiplier. We therefore conclude that the remaining term

In fact the whole mathematical effort only results in a formula for a Keltner Channel with a modfied offset. What does this mean? Take an Acceleration Band with period 20 and k=2.5 and put it on your chart. Then you know that the Acceleration Band will be between the UpperBand of a KeltnerChannel (20,3) and a Keltner Channel (20, 3.03). On a daily or an intraday chart, the difference cannot be noticed. Even on a monthly chart, it is close to negligable. The chart attached has the Keltner Channel and Acceleration Bands added.

May they rest in peace

Both the upper and the lower band of the Acceleration Bands are slightly above the Keltner Channel, as volatility is adjusted to highs and lows of the BarSeries. But as this difference can be neglected, we simply opt to promote the Acceleration Bands to the Grand Cemetery of Useless Indicators. One more eliminated.

May they rest in peace and no longer haunt unsuspecting traders.

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Last edited by Fat Tails; August 27th, 2012 at 04:32 PM.

The following 13 users say Thank You to Fat Tails for this post:

Useless does not necessarily equate to worthless ... if we create a thread on futures.io (formerly BMT) touting the amazing results achieved with this indicator... within a week some trading "Guru" will have renamed it and included it in his $5000 "proprietary" trading indicators package along with a monthly maintenance fee....

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"

The following user says Thank You to ThatManFromTexas for this post:

There are modified versions of the Keltner Channel, which use the ATR. However, there is a catch to transform a genuine Keltner (10,2) into Keltner built from ATR. You would need to

- use a midband period of 10 (as with the original Keltner)
- and a ATR period of approximately 10.5

The reason: To obtain smoothing comparable to an SMA however, you would use an EMA with a period of 20, which translates into a smoothing factor of 2/(10 +1) = 2/11. An ATR period of 5 would translate into a smoothing constant of 1/5, an ATR period of 6 into a smoothing constant of 1/6.

The following 3 users say Thank You to Fat Tails for this post:

So on another platform there was a guy that seemed very bright. He "created" an indicator used for initial price targets called "Radical9". Because of the way the guy communicated I did not really question the visual. Then, when considering transition to NT, I decided I needed "Radical9" and some others or I could not make the move. My eye never picked it up but @Fat Tails saw it right away. He typed, "Why don't you just use Keltner Channel?" Like a fool I fought him on that. This mysterious custom and very proprietary indicator that was cloaked in numerology and ashtakvarga astrology bologna couldn't be a straight up Keltner. Well 36 period with 3 x atr...get it radical 9. I learned a great deal that day.

I bet all the other mysterious proprietary items are regular stuff cloaked in mysterious notions as well.

Is there an actual list as the thread implies. I'd be interested in reviewing it to see if any other secrets from the past are there. DB

The following 4 users say Thank You to wldman for this post: