Mike Base Channels

Type

Self –adjusting Volatility Envelope

History

Mike Base Channels is based on the concept of channels. It uses typical price as base and consists of three channels classified as weak, medium and strong. The typical price is the weighted average of high, low and close of a day. The weak channel is determined by the difference between base and high/low as the distance to the base. The medium channel is determined by the difference between low and high as the distance to the base. The strong channel is determined by the difference between high and low as the distance to high/low.

How does it work?

Mike Base Channels allows users to analyze one-day volatility based on the high, low and close of the day. It tries to use the typical price to reflect the price movement during the day.

The three channels of Mike Base Channels represent weak, medium, and strong support/resistance, which are plotted at volatility levels above and below the typical price. A distinct characteristic of Mike Base Channels is that it uses a day’s high, low and close to derive possible support/resistance. This approach tries to overcome the lagging weakness of moving average in Bollinger Bands.

Mike Base Channels is not a trend following indicator. It is used to analyze possible weak, medium, or strong support/resistance by its three channels. Trading Signals

The three channels of Mike Base Channels have the following interpretations.

The weak channel compares the high/low with typical price. If the typical price is near low, it is likely that prices tend to move lower and may have trouble returning to its high. The resistance level should be the upper band, which is lower than its high. On the other side, if the price closes into upper band during its downtrend, the lower band will become its support. Similar analysis applies to its up trend.

The medium channel assumes that the current price range is same as the previous range. During up trend, the upper band is the resistance. During down trend, the lower band is the support. In many cases, prices move along either upper band or lower band. It is very rare that one-day prices (high, low and close) will respect both bands.

The strong channel is the extreme limits of price movement. It places the previous price range on top of the previous high and below the previous low. It is very rare that prices would go out of the strong channel.

Settings

There are no periods in calculating Mike Base Channels. However, you can set them non-zeros to show the respective channels and zeros to turn channels off.

Sharechart Default:  1 in the first period to show the first channel (weak channel), and 0s in other periods.

Example

Commonwealth Bank of Australia is used as an example below to illustrate the weak bands:

  1. Prices close in the upper band for most cases with lower band as support.
  2. Prices break the lower band that is the support and thus form down trend.
Prices break the upper band (as resistance) and thus form upper trend. The prices close in the upper band for most cases with lower band as support.