How to interpret Gaussian Channel Indicator.
This is a supplementary post to the Analysis I posted yesterday (Link attached in Related Ideas).
Mathematically, the mid band is smoothed version of current Price just like a moving average but smoothening in Gaussian Channel is done recursively to filter out noise even more.
The top and lower bands are created by drawing them certain standard deviation away from the mid band.
We can use GC's direction to get a sense of the overall trend. Top and lower bands can be used to judge overbought and oversold conditions.
The width of the full channel is directly proportional to volatility.
Here is how I use the Gaussian channel:
1. All the bands act as Support and resistance levels so I look for buying and selling at those levels if I have other confluences like a harmonic PRZ, or S/R levels determined using some other method.
2. If I see Price going above or below the channel then I use the width of channel to determine how much it will deviate, if the Channel is narrow, it should not deviate much but if channel is huge price can take larger swings out of the channel once the price close above or below them on a particular timeframe. I have illustrated this in the chart.
3. I visually look for patterns of Price and Gaussian channel formation in the past and use that pattern to guess what will happen in future if the pattern is repeating. (Shown in the chart).
Mathematically, the mid band is smoothed version of current Price just like a moving average but smoothening in Gaussian Channel is done recursively to filter out noise even more.
The top and lower bands are created by drawing them certain standard deviation away from the mid band.
We can use GC's direction to get a sense of the overall trend. Top and lower bands can be used to judge overbought and oversold conditions.
The width of the full channel is directly proportional to volatility.
Here is how I use the Gaussian channel:
1. All the bands act as Support and resistance levels so I look for buying and selling at those levels if I have other confluences like a harmonic PRZ, or S/R levels determined using some other method.
2. If I see Price going above or below the channel then I use the width of channel to determine how much it will deviate, if the Channel is narrow, it should not deviate much but if channel is huge price can take larger swings out of the channel once the price close above or below them on a particular timeframe. I have illustrated this in the chart.
3. I visually look for patterns of Price and Gaussian channel formation in the past and use that pattern to guess what will happen in future if the pattern is repeating. (Shown in the chart).
