What is the “Berma Bands” indicator
It is an indicator used to determine the direction of price movement, whether the trend is upward, downward, or sideways.
The “Berma Bands” indicator consists of three-line studies, which are:
- The “Berma Upper Band”.
- The “Berma Middle Line”.
- The “Berma Lower Band”.
The Indicator’s Formula.
The indicator is based on the “Simple Moving Average”, “Standard Deviation, and “Berma Deviation Percent”.
We can explain the equations for the three bands in the following steps.
First, the Berma Middle Line. This is a “Simple Moving Average” of the price movement. The reason for using the “Simple Moving Average” is that the “Standard Deviation Formula” is based on it.
Second, We Calculate the Amount of Change. This is the product of the “Standard Deviation” of prices multiplied by the “Berma Deviation Percent”.
Third, to calculate the “Berma Upper Band”. The amount of change is added to the “Simple Moving Average”.
Fourth, to calculate the “Berma Lower Band”. The amount of change is subtracted from the simple moving average.
This slide shows the three equations together.
“Berma Bands” and time.
Also, all equations are calculated using the same period. For example, if we want to calculate the “Berma bands” for fifty time periods. So, all components are calculated in fifty time periods.
Importance of “Berma Bands”.
The Berma Bands indicator is very valuable because it solves one of the most important problems with trend indicators, which is identifying the sideways trend.
Most trend indicators, such as all kinds of moving averages, have trouble dealing with those areas where price action loses its volatility and starts moving sideways.
But by adding the "Standard Deviation" and "Berma Deviation Percent" to its moving average, we find a good solution to this problem, and it becomes possible to identify those areas where price volatility increases with the trend, and those areas where price volatility decreases and becomes trendless or sideways.
What Do Indicator Lines Mean?
The “Berma Bands” indicator consists of three lines working together.
When the three lines join and move together, it is an indication of price volatility on the chart. This happens when the value of the “Berma Deviation Percent” equals zero.
When the lines move away from each other, it is an indication of weak price volatility on the chart. This happens when the value of the “Berma Deviation Percent” is greater than zero. The distance between the “Berma Bands Lines” reaches its maximum extent when the value of the “Berma Deviation Percent” reaches 100.
What is a “Berma Cloud”?
When the lines move away from each other, it creates a "Berma Cloud".
The “Berma Cloud” indicates weak price volatility. That is, the price line is less able to move in a clear upward or downward direction, and therefore, the probability of sideways movement is high.
What Are “Berma Bands” Buy and Sell Signals?
First, A Buy Signal or The Beginning of An Uptrend.
It occurs when the price candles cross the “Upper Berma band” to the upside. That is, when the previous candle closes below the upper band, and the current candle closes above the upper band.
Second, A Sell Signal or The Beginning of a Downtrend.
It occurs when the price candles cross the “Lower Berma Band” to the downside. That is, when the previous candle closes above the lower band, and the current candle closes below the lower band.
At The End.
With this, my friend, we have learned about one of the most important technical analysis indicators in determining the direction of price movement on charts, which is the "Berma Bands" indicator.
Now, let's move on to the next topic in this course.
