Trends/Trendlines and channels

Standard deviation channel

A regression line with bands at one and two standard deviations, so you can see how far price is from its average path.

Trendlines and channelsBest on 6M, 1Y, 3YAlso called sigma channel

Illustration of the standard deviation channel shape. It is a sketch, not real price data.

What it shows

This channel uses the same fitted line as the linear regression channel but draws more than one band: lines at 1 and 2 standard deviations above and below.

Standard deviation is a measure of typical distance from the line. About two thirds of closes land within 1 standard deviation and about 95% within 2, if prices are evenly spread. Real prices often stray farther.

How we find it

The same code that draws it on your chart follows these steps, with the same result every time.

Fit a least squares line through the closing prices.
Compute the standard deviation of the distances from the line.
Draw bands at ±1 and ±2 standard deviations.
Show the percent of closes inside each band.

Starting values: Window whole period shown; Bands ±1 and ±2 standard deviations. These are proposed and will be tuned on real price data before launch.

How to read it

The dashed line is the fitted path.
The inner pair of lines mark a normal range. The outer pair mark a wide range.
Closes outside the ±2 lines are unusual for this window.

Status labels you may see

Label	What it means
Within 1 deviation	Close is inside the inner pair of lines.
Between 1 and 2	Close is between inner and outer lines.
Beyond 2 deviations	Close is outside the outer lines.

What cancels it

Nothing cancels it. The fit is redrawn as new bars arrive.

What traders check next

How many closes landed outside the outer lines.
Whether the slope is steady or changing.
Whether the band width is growing.

Limits

Price returns are not evenly spread, so 95% is not guaranteed.
One large move widens the bands.
A different window gives a different channel.

Try it in forecastviz

Open any ticker and choose Trendlines and channels → Standard deviation channel in the left menu.
Switch between 6M, 1Y, 3Y to see how the picture changes.
Compare with Linear regression channel and Raff regression channel on the same chart.

Open on a ticker

Questions

What is a standard deviation?

It is the typical distance between each close and the fitted line. A bigger number means wider swings.

Why two bands?

The inner band shows an ordinary range. The outer band shows an unusual one.