How do you calculate STARC Bands?

To calculate STARC Bands, the correct method involves using the Average True Range (ATR) and the Simple Moving Average (SMA) of closing prices. Specifically, you take the 5-period ATR and either add it to or subtract it from the 5-period SMA of closing prices. This process helps to establish upper and lower bands around the SMA, providing insights into potential price movements and volatility.

STARC Bands, which stands for Stoller Average Range Channels, are particularly useful in indicating overbought or oversold conditions in the market. By incorporating ATR, which reflects the market’s volatility, and SMA, which smooths price action, traders can make informed decisions about entry and exit points.

The other choices do not align with the standard methodology for calculating STARC Bands. For instance, multiplying closing prices by average volume does not yield a volatility band; rather, it would produce a numerical value that combines price and volume without giving context to price movements. Similarly, using the RSI to determine band width focuses on momentum rather than volatility. Meanwhile, calculating the moving average and standard deviation of prices pertains more closely to other forms of technical analysis rather than the specific formulation of STARC Bands.