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Introduction
The Iterative Gaussian Channel adapts to changing market conditions in real-time. Instead of fixed bands around price, this indicator creates dynamic boundaries that expand and contract based on actual market behavior.
Key Features
- Adaptive Upper/Lower bands
- Smooth Center Line
- Customizable Length (sensitivity)
- Non-Repainting (only current ongoing bar is updated every “Refresh After Ticks” number of ticks)
- Multiple Price Sources – Choose from close, open, high, low, median, typical, or weighted close
Components:
The Basis Line
The smooth center line represents the weighted average of price. Think of this as the “true” price level when all the noise is removed.
Price trades above the basis line, buyers are in control; below – sellers are in control
And price will keep coming back to this center line
The Upper/Lower Bands
These represent the boundaries of the channel. They separate when volatility increases and contract when volatility decreases. Price reaching or exceeding these line signals potential:
- A strong continuation if price is trending up (above upper) and trending down (below lower) bands
- A reversal if price briefly touches them and reverse during a pullback – especially if center line indicated sideways market
Basic Trading Scenarios
Scenario 1: Trend Following
Center line sloping upwards or downwards shows a trending market.
The channel widening shows strong momentum. Center line will act as an SR area and price will retrace back to it.
How to trade it: Look for price bouncing off the basis line as potential entry points in the direction of the trend.
Scenario 2: Mean Reversion
When price goes far beyond the outer bands, it signals an overbought/oversold condition. Markets naturally tend to revert toward the average (basis line).
How to trade it: When price reaches the outer bands, consider waiting for a bounce back toward the basis line rather than chasing the extreme move.
Only trade such retracements in case you are scalping. Don’t use these signals for longer trades. And don’t hold the trade for too long. These signals are best during sideways market when center line is flat.
Scenario 3: Breakout Confirmation
A narrow channel indicates consolidation or low volatility. When the channel suddenly widens, this often precedes a significant price move. The break of the outer band can confirm a directional breakout.
How to trade it: When the channel transitions from narrow to wide, watch for price to break through an outer band as confirmation of a new trend beginning.
The basis line and outer bands serve as dynamic support and resistance levels. Rather than static horizontal levels, these adapt to current market conditions, making them more relevant as prices change.
Use the bands as natural take-profit levels, stop-loss placement zones, and reversal target areas.
Cheat Sheet: Settings
Scalping (1-5 Minute Timeframes)
Length: 50-75
Strategy: Catch quick reversals from the outer bands and trend continuations from the basis line
Watch for: Rapid channel expansions signaling momentum
Risk Management: Tight stops at recent support/resistance
Best Use: Quick mean reversion entries when price touches outer bands during defined trends
Day Trading (15-60 Minute Timeframes)
Length: 100-150
Strategy: Follow the direction of the basis line for trend trades; use bands for breakout confirmation
Watch for: Sustained movements beyond the outer bands indicating real directional moves
Risk Management: Place stops beyond the far band during breakouts
Best Use: Trend confirmation trades and breakout fades
Swing Trading (4-Hour & Daily Timeframes)
Length: 150-200
Strategy: Use the basis line to identify swing direction; the bands mark natural swing highs and lows
Watch for: Multiple touches of upper or lower band (multiple attempts at resistance/support)
Risk Management: Position size based on channel width; wider channels = larger risk per unit
Best Use: Multi-day trend following with the bands as dynamic take-profit targets
Position Trading (Daily & Weekly Timeframes)
Length: 250-400
Strategy: The basis line shows the long-term trend; use it to hold positions through normal pullbacks
Watch for: Extended moves beyond outer bands as profit-taking points
Risk Management: Use wider channel widths to justify larger position sizes for longer-term moves
Best Use: Riding extended trends with confidence that pullbacks to the basis line are normal
Tight Consolidation Environments
Length: 80-120
Strategy: Watch for the first breakout of the outer bands; tight channels suggest a breakout is coming
Watch for: Channel expansion following a consolidation period
Risk Management: Higher risk of false breakouts; require additional confirmation
Understanding the Calculations
The Gaussian approach weights recent prices more heavily and older prices less heavily, creating a curve that follows price more closely without the artificial lag. It’s like saying “the current price is important, but I also want to know the general direction prices were moving.”
The weight given to each older price follows the famous bell curve (Gaussian distribution). Here’s what that means:
• The most recent price gets the highest weight (100%)
• Prices from 1-2 bars ago get slightly less weight
• Prices from 5 bars ago get noticeably less weight
• Prices from 20+ bars ago get minimal weight
This creates responsiveness without being overly jittery.
Rolling Standard Deviation: Measuring Volatility
Standard deviation is just a mathematical way of saying “how spread out are prices?”
Imagine a calm market where prices stay between 100.00 and 100.10. That’s low volatility, so the standard deviation is small.
Now imagine prices swing from 99.50 to 100.50 in the same timeframe. That’s high volatility, so the standard deviation is large.
The Iterative Gaussian Channel measures this spread using the most recent 200 bars (or whatever length you set). When volatility increases, the measured spread increases, so the bands widen. When volatility decreases, the bands narrow.
The upper band is calculated as: Basis Line + (Standard Deviation × 1.0)
The lower band is calculated as: Basis Line – (Standard Deviation × 1.0)
This means the bands are always positioned exactly 1 standard deviation away from the basis line, which is statistically meaningful—roughly 68% of price moves should stay within these bands during normal conditions.
Why “Iterative”?
The “iterative” part means the indicator calculates bar by bar, moving forward through time. This prevents “repainting”—a common problem where some indicators show different values when you reload the chart because they recalculate old bars.
Settings Explained
Main Settings
Length (Default: 200)
• Controls how many recent bars are included in the calculations
• Higher = smoother, slower-reacting indicator (better for trend following)
• Lower = more sensitive, faster-reacting indicator (better for catching reversals)
• Range: 10-500 (anything outside this is unusual)
Source (Default: Close)
Options include:
• Close – Most common; uses the closing price of each bar
• Open – Starting price of each bar
• High – The highest price reached during the bar
• Low – The lowest price reached during the bar
• Median (HL2) – The midpoint between high and low
• Typical (HLC3) – The average of high, low, and close (often more stable)
• Weighted – Close gets extra weight compared to high and low
Most traders stick with Close. Some prefer Median or Typical during choppy markets to reduce false signals.
Shift (Default: 0)
• Moves the entire indicator forward or backward in time
• Positive numbers shift right (future); negative numbers shift left (past)
• Usually leave this at 0
• Advanced use: Creating leading or lagging versions of the same indicator
Refresh After Ticks (Default: 50)
• How many price ticks must occur before the indicator updates
• Lower = more frequent updates, more CPU usage
• Higher = faster performance, slightly less responsive
• Leave at default unless you have performance issues
Maximum Past Bars (Default: 5000)
How many historical bars to include in the calculation
Debug Settings (For Analysis)
Show Debug Values/Buffers (Default: Off) – See all debugs in your Experts tab logs.
Start Debug Bar (Default: 0) – Which bar number to start displaying debug information (0 = current bar)
Debug For Bars (Default: 10) – How many recent bars to show debug information for
Like any tool, its effectiveness comes from understanding how to use it. Spend time with it on your preferred timeframe and Symbols. Watch how it behaves in different market conditions. Adjust the length setting until it’s right for your strategy (long term trading vs Scalping. Trading sideways markets or trending markets…). The best setting isn’t the one everyone else uses. It’s the one that fits your specific trading approach.
Happy trading.
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