ABERRATION
The Aberration indicator is a volatility-based technical analysis tool that helps identify potential trend reversals and price breakouts. It uses moving averages and Average True Range (ATR) to create dynamic support and resistance bands around price action.
Formula
Upper Band = SMA(High, length) + (ATR(atr_length) * 3)
Middle Band = SMA(Close, length)
Lower Band = SMA(Low, length) - (ATR(atr_length) * 3)
How ABERRATION Works
The Aberration indicator creates three bands - upper, middle, and lower. The middle band is a simple moving average of closing prices, while the upper and lower bands are calculated using the high and low prices plus/minus a multiple of the ATR. When price moves outside these bands, it may signal a potential trend reversal or continuation depending on the context.
Trading Strategies Using ABERRATION
Strategy Examples
- Buy when price crosses above the lower band and the trend is upward
- Sell when price crosses below the upper band and the trend is downward
- Use middle band crosses as trend confirmation signals
- Look for divergence between price and band movements for reversal signals
Support and Resistance Strategy
- Upper and lower bands act as dynamic resistance and support levels
- Multiple touches of bands can indicate strong support/resistance zones
- Band compression suggests potential breakout zones
- Use band width to gauge market volatility levels
Trend Identification
- Price consistently above middle band indicates uptrend
- Price consistently below middle band indicates downtrend
- Price oscillating around middle band suggests sideways trend
- Band slope direction helps confirm trend strength
Advantages and Limitations
Advantages
- Combines trend and volatility analysis
- Provides dynamic support/resistance levels
- Can identify potential breakout opportunities
- Works well in trending markets
Limitations
- May generate false signals in choppy markets
- Lag due to use of moving averages
- Requires confirmation from other indicators
- Not ideal for ranging/sideways markets
Best Practices When Using Aberration
- Combine Aberration signals with other technical indicators for confirmation
- Use multiple timeframes to validate trend direction and strength
- Wait for clear band crossovers rather than acting on small price fluctuations
- Consider overall market context when interpreting band signals
- Set appropriate stop-loss levels based on band positions
- Monitor volume patterns alongside band movements for stronger confirmation
- Look for divergences between price action and band behavior
- Pay attention to band compression and expansion patterns
- Be cautious of false signals during highly volatile periods
- Use Aberration as part of a complete trading strategy, not in isolation