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Standard Deviation Channel

Two lines, which are parallel to the Linear Regression Trend line, correspond to the Standard Deviation Channel. Their distance from LTR are x standard deviations.

Prices movement from tops to bottoms is objective. New highs are created when the optimism of the market participants increases. New lows become the result of the market participants' pessimism accordingly.

Markets are supposed to have the pricing point being equilibrium. The Standard Deviation Channel gives the sign of extremes falling in the same way as Linear Regression Trend line shows an equilibrium point.

The position of the point on the graph, which is one standard deviation above and below the LRT, falls in 67% cases according to statistics. Two standard deviations increase gives the 95% possibility for the data do decrease between these lines.

Standard Deviation Channel

When prices get higher or lower compared to any of the other lines, then it gives a forecast of its returning to the "channel" in case the general trend does not reverse.

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