McMillan Volatility Bands, a charting analysis tool developed by world-renowned options trader and author Lawrence G. McMillan, is an optimized approach to John Bollinger's Bollinger Bands. Leveraging his expertise in options trading, Lawrence designed this volatility-based strategy with a focus on how option prices are calculated – using the Black-Scholes definition of volatility. The McMillan Volatility Bands pricing model assumes a financial asset's volatility should be measured in percentage change rather than absolute value change.
The McMillan Volatility Bands charting indicator for TradingView will plot the 3 and 4-standard deviation bands around a 20-day moving average, giving you the same parameters Lawrence has used in his own analysis for many years. The user can, however, change the standard deviation value, as well as the moving average length, to their preferred setting. The McMillan Volatility Bands indicator can theoretically be used on any asset and on any time frame.
In addition to the standard deviation bands and moving average trendline, the indicator will also plot Buy and Sell signals based on a well-established trading system used by McMillan in his newsletter publication, The Daily Strategist. The system gives a buy or sell signal when price closes outside the 4-sigma band, then closes back within the 3-sigma band. The 'signal bar' will be colored green or red for a buy or sell signal setup, respectively.
Finally, an arrow indicator will be plotted on the chart where the trading system would actually enter the trade. The arrow indicator is determined when price trades at a designated measurement beyond the extreme of the 'signal bar'. This measurement is an input parameter and can be adjusted by the user. We've chosen the default value of 0.34, meaning the indicator will not give a buy or sell entry until the price moves 1/3 x beyond the extreme signal bar. We’ve found this measurement successfully removes less-valuable trade setups and prevents getting whipsawed by some setups that never really move in your favor.
Below are some examples of the charts and signals.