Walkthroughs / Baus Bands

Baus Bands — walkthrough

Contents

What it is

The Baus Bands are a simplified version of the Neapolitan Bands trend indicator. This version shows only the trend trading zones in green and red. An additional 21 EMA with an ATR band completes the trend-trading rules below.

How do I read this indicator?

  • Is the blue band between and not touching the green or red clouds? The condition is ranging.
  • Is the blue band touching the green cloud? The condition is a bullish trend.
  • Is the blue band touching the red cloud? The condition is a bearish trend.

Trend-trading rules

The trend trading rules are the same as the standard Neapolitans, but include an extra condition. A trend has started once 2 conditions are met:

  1. Price has entered either trending cloud.
  2. The 21 EMA ATR band in blue is within the same cloud.

With those conditions met, if you expect the trend to continue, trade pull-backs to the blue band in the direction of the trending cloud.

Common questions (from Joe)

Isn't this just a 21 EMA trading pull-backs strategy? No. The 21 EMA alone is not sufficient to define a range or trend technically. Always buying the 21 EMA pull-back, especially in a range, is not a great strategy by itself unless price is already identified as trending. Baus Bands adds that trend identification.

Why make this? Baus Bands show only the conditions used for catching trends and identifying ranges. Nothing extra.

What's the purpose of the ATR band around the 21 EMA? Sometimes price will open and close below the 21 EMA and cause some technical analysts to say the trend is over. The ATR adds a volatility-based upper and lower bound around the 21 EMA. It gives an acceptable price range where price can move past the 21 EMA and the trend stays valid under the same rules. So long as this ATR band (not the 21 EMA itself) keeps touching the trending clouds, the trend has a good chance of continuing.