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Smoothed Percent b Oscillator

You're probably familiar with the Percent b (%b, or PB) oscillator that was developed by John Bollinger — it's derived from the Bollinger Bands indicator. Here's how it works: When the price touches the upper Bollinger Band, then the oscillator hits 100. If price moves above the upper band, the oscillator moves to +100. When the price touches the lower Bollinger Band, then the oscillator hits zero, and if price moves below the lower band, the oscillator moves to a negative value. Here's how it's calculated: Percent b = (Closing price – Lower band) / (Upper band – Lower band) * 100

Basic Calculation

When I created my zero-lag oscillator (SVEZLRBPercB), which is based on the Percent b, I used the same basic formula as the Percent b. However, before applying the formula, I manipulated the input data I used. In a July 1997 Stocks & Commodities article, Mel Widner introduced rainbow charts, which is the technique I used to convert the closing price data to a "rainbow" data series and give some extra weight for the less-smoothed data.

Next, I averaged this new rainbow data series with an exponential moving average (EMA) by applying a zero-lag method. The idea of smoothing data with less lag and zero-lag techniques was proposed by Patrick Mulloy in the February 1994 issue of Stocks & Commodities and by John Ehlers in the March 2000 issue. The technique compensates for the lag in moving averages. Finally, I calculate and plot the modified Percent b formula, but only after applying another smoothing step using triple exponential moving averages (TEMA) and weighted moving averages on the zero-lag ZLRB data series.

A full description can be found in the Stocks & Commodities September 2013 publication. You can download the NinjaScript ZIP file below.

 

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The figure shows the volatility band with the default settings and the SVEZLPercB oscillator.

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Download the basic NinjaScript formula for this smoothed percent_b oscillator: SVEZLRBPercB.zip

 

 

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