Introduction to the STARC Bands indicator
The STARC Bands indicator – Stoller Average Range Channel Bands is an indicator created by Manning Stoller. It gives the signal to open buy or sell options. It works on both, trending and ranging markets.
Setting up the indicator on IQ Option
Go to your IQ Option account and choose the chart type for a particular asset. Then click on the chart analysis icon. Unfold the ‘Indicators' tab and find ‘Volatility'. A new list will appear. The last step is to select ‘STARC Bands'. The indicator will be then attached to the chart.
Now you can either leave the default settings or change the parameters of the SARC Bands. You can adjust the period, moving average period (typically between 5 and 10), multiplier (a very common multiplier is 2), source price and the type of moving average.
What the STARC Bands indicator is made of
The STARC Bands indicator consists of the middle line which is a simple moving average of the asset‘s price and two bands below and above it. The bottom band is calculated by subtracting the value of the average true range (ATR) from the SMA. The top band is established by adding the value of the ATR to the SMA (or by adding multiple values of the ATR to the SMA).
The formula to calculate the STARC Bands indicator is as follows:
STARC Band+ = MA + (Multiplier×ATR)
STARC Band- = MA − (Multiplier×ATR)
How to use the STARC Bands in options trading on IQ Option
The bands of the Stoller Average Range Channel Bands indicator create a channel that offers potential levels of support and resistance. The lower band is showing the security's support price level and the upper band the security's resistance level.
The principal rule in the trading strategy based on the STARC Bands indicator is to buy when the security's price is close to the support level and sell when it is close to the resistance band.
If you are trading options, open option for a price increase when the asset‘s price closes below the lower band of the indicator.
You should open an option for price decrease when the price closes above the upper band.
The duration of your transaction should be equal to the duration of the next candle after the signal candle.
A change in the trend is anticipated when the bands are breached and we are simply using this fact in our STARC Bands strategy.
During ranging price action it is still good to buy near the lower band and sell close to the upper band. When the breaches are noticeable it can be a signal of the end of the range.
Changing the multiplier of the average true range will affect the width of the channel. The bands will be further from one another when you increase the multiplier. They will be closer to each other when you decrease the multiplier. Narrow bands will show more trading opportunities thus are a good choice for short-term traders. For those who prefer long-term trading, I would recommend wider bands.
The STARC Bands and the Bollinger Bands
You may have noticed the similarity between these two indicators. Both consist of three lines. The simple moving average in the middle and two bands around it. But the difference lies in the calculations. While the STARC Bands rely on adding and subtracting the value of the ATR, the B-Bands are based on adding and subtracting a standard deviation. The interpretation is pretty much the same though. But they will look a bit different on the price chart.
Downsides of using the STARC Bands
One downside of using this indicator is that the price can run along with the bands for a long time. So a trade that looked promising in the beginning may actually be quite weak.
The bands are moving together with a price. So when the price falls the bands will move down as well. And vice versa.
That is why it is recommended to use stop loss while trading close to the bands while trading CFDs. Like this, you will control the amount of potential loss. And as for the profit, use trailing stop losses instead of take profit. This will ensure you will not lose in case of the trend reversal and you will still take your profit.
As always, try the strategy based on the Stoller Average Range Channel Bands indicator on the free demo account first. You will earn the time necessary to get to know the indicator well. Once you feel confident using it, switch to the real IQ Option account.
Wish you success!
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