What is the Stoller Average Range Channel (STARC) band?
Developed by Manning Stoller, commonly referred to as STARC Bands, Stoller Average Range Channel Bands are two bands that apply above and below the Simple Moving Average (SMA) of asset prices. The upper band is created by adding the average true range (ATR) value or a multiple of it. The lower band is created by subtracting the ATR value from the SMA.
The channels created by the band can provide traders with ideas about when to buy or sell. For example, on an overall uptrend, it is advantageous to buy near the low band and sell near the high band. The STARC band can provide insights into both the range and trend markets.
- In an uptrend, if prices are generally high and low, it may be advantageous to buy near the lows (STAR C Band-) and sell near the highs (STAR C Band +). I have.
- During the downtrend, it may be preferable to short near the upper band and cover near the lower band.
- When the band is broken, it can show a change in the trend. For example, a sharp drop in low bandwidth during an uptrend could indicate that the uptrend has ended.
- If the price action is volatile or within range, the same general guidelines apply. This could mean that buying near the lower band, selling near the upper band is prioritized, and serious violations of either band are out of scope.
- The length of the SMA is chosen by the trader and is usually 5-10 periods.
- Traders can also choose how much they exceed SMA based on multiples of ATR. It is common to place the band at +/- 2 ATR.
Stoller Average Range Channel (STAR C) Band Formula
..Stark band+..= =SMA+(((multiplierXXATR)Stark band−..= =SMA−(((multiplierXXATR)where:SMA= =Simple moving average, lengthUsually 5-10 periodsATR= =Average true rangemultiplier= =Elements to apply to ATR – two are commonBut you can adjust it to your personal taste....
How to calculate STARC band
- Select the length of the SMA. A period of 5 to 10 is common in STARC bands.
- Select a multiple of ATR. Two ATRs are common, but this can be adjusted as needed.
- Calculate SMA.
- Calculate the ATR and multiply by the selected multiple.
- Add a multiple of ATR x to the SMA to get the STARC Band +.
- Get the STARC Band- by subtracting the ATRx multiple from the SMA.
- A new value is calculated at the end of each period.
What does the STARC band tell you?
The STARC band is a type of envelope channel that provides potential support and resistance levels.
The STARC band follows basic price channel trading methods. The upper band is considered to indicate the resistance price level of the security and the lower band is considered to indicate the support price level of the security.
The basic trading strategy is to sell when the price of the security is close to the resistance band and buy when the price of the security is close to the support band. Prioritize this strategy if prices are generally on the rise or if prices are fluctuating. If the price is on a downward trend overall, it is advisable to short near the upper resistance band and cover near the lower support band.
One thing to keep in mind is that prices can fluctuate along the band over time. This can mean that prices continue to move along the band, so it may turn out that good deals at the moment are pretty poor. Imagine, for example, selling a long position when the price reaches its limit. You just see prices and caps continue to rise for some time.
Traders can use a variety of average true range multipliers to influence the width of the band. The higher the multiple, the wider the bandwidth. The smaller the multiple, the tighter the band. Long-term traders may prefer wider bandwidth, while short-term traders may prefer narrower bandwidth to potentially seize more trading opportunities.
Difference between STARC Bands and Bollinger Bands®
STARC bands and Bollinger Bands® are similar in that they create bands around a simple moving average. STARC bands form a band by adding and subtracting ATR multiples. Bollinger Bands ® adds and subtracts multiples of the standard deviation to form the upper and lower bands. The interpretation of the bands is similar, but the calculations are different. Therefore, the two indicators look slightly different on the chart.
Restrictions on the use of STARC bands
The STARC band can be used to signal potential trading opportunities near the band, but the main problem is that the band is always in motion. It looks good to buy near the lows, but as the lows and prices continue to fall, the signal provided was inadequate. This happens often when the price reaches the band, but the band keeps moving in that direction.
To solve this problem, use stop-loss when trading near the band. This helps control the risk if the price keeps fluctuating with respect to the position. Also, instead of profiting when the price reaches the band, consider tight trailing stop loss instead. This allows prices to continue to move along the band, increasing profits. Even if the price reverses, the profit will be fixed.