In this study, reverse engineered levels are calculated and used to generate a index for VMA calculation.
First, price levels are calculated for when will equal 70 and 30. The difference between the levels is taken and normalized to create the index.
Next, an initial VMA is calculated using the created index. The moving average is an exponential calculation that adjusts the sampling length as changes.
Then, upper and lower VMAs are calculated by taking a VMA of prices above and below the initial VMA. The midline is produced by taking the median of the upper and lower VMAs.
Lastly, the band levels are calculated by multiplying the distance from the midline to the upper and lower VMAs by 1, 2, 3, 4, and 5.
Bar colors are included. They're based on the midline trend and price action relative to the upper and lower VMAs.
For example: to trade pullbacks -> If midline depicts downtrend (red) we could short when price touches midline and exit when price touches the lower band? viceversa for uptrend.
What do you suggest? It'd be great to see a backtest strategy too!
Thanks in advance!
You could probably get decent results using only this tool if you have a good risk management strategy in place, but this is not a tool I've personally used as a standalone. Instead, I've mainly used it as a trend confirmation tool.