follow a certain pattern that can be applied to shorter or longer periods of time
and we can use Chaos Bands Indicator to identify those patterns. Basically,
the Chaos Bands Indicator helps us to identify whether the stock market is
trending or not. When a market is trending, the bands will have a slope and if market
is not trending the bands will flatten out. As the slope of the bands decreases, it
signifies that the market is choppy, insecure and variable. As the graph becomes more
and more abrupt, be it going up or down, the significance is that the market becomes
trendy, or stable. Chaos Bands Indicator is used similarly to other bands-indicator
( for instance), offering trading opportunities when price moves above or
under the lines.
The FCB indicator looks back in time depending on the number of time periods trader selected
to plot the indicator. The upper line is made by plotting stock price highs and the
lower line is made by plotting stock price lows. Essentially, the Chaos Bands
show an overall panorama of the price movement, as they filter out the insignificant fluctuations
of the stock price.