Fibonacci Bollinger Bands is a community script developed by "Rashad" and is one of the popular community scripts in tradingview. The author of the script has not given an explanation to the script, however, the entire code is open for the community for study and development.
Another script on the same is by "Shizaru". Shizaru has given an explanation of the indicator's construction but has not provided details about its uses.
Both the script have different logics for the calculation of bands and Fibonacci bands inside the Bollinger band. In this blog post, I will be discussing both of these scripts. The differences are as under:
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Rashad
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Shizaru
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Uses standard deviation of 3 for calculation of upper and lower bands
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Uses ATR for calculation of the extreme upper and lower bands
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The 3 standard deviation is divided into Fibonacci ratios of 0.236, 0.382,
0.5, 0.618, 0.764, 1
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ATR ratio of 1.618,2.618,4.236 defines the three lines above mean and
below mean.
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Seems more logical as Bollinger bands are based on standard
deviations and the division of standard deviation with ratios is as per
acceptable literature. 97% values should be under the bands.
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Shizaru has used descriptions provided on the internet for Bollinger Bands® Fibonacci Ratio.
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Fibonacci Bollinger Bands - by Rashad
Below is the indicator on the SBIN from the National Stock Exchange of India. The Fibonacci lines are represented by L1,L2,L3,L4 and L5. The below daily chart is from May 2021 to Aug 2021.
It may be observed from the above chart that price has received some reaction from the Fibonacci lines drawn inside Bollinger bands. During the period under examination, the price raised from below L2 to L4. No price reaction was observed when the first time price crossed/breached L2. However, on all occasions when price touched the Fibonacci level lines during rising or decline, they have to produce reactions as marked on the chart.
Out of the 6 events of crossing/touching of price with levels for the first time, 5 times it produces a reaction.
Bollinger Bands Fibonacci ratios - by Shizaru
We have now applied the script developed by Shizaru on the same scrip for the same period and timeframe. We can observe that the band lines in this one are less than the earlier one but the gap between the band lines is smaller.
Due to the smaller gap between the band lines price has crossed/touched these lines many times during the same period. As compared to six events of band touching or crossing in the previous section as discussed above we can observe that there are nine such events in this script. Out of the nine such occasions, the price at E and H did not provide enough reaction. In fact, at E there was no reaction while at H there was a minor reaction.
For all practical purposes, both the scripts were able to provide points of reaction through the band lines. You can choose any one of them as per your requirement and volatility in the market. It is suggested that you back test them on the scrip, forex, commodity onto which you would like to apply.
Combining both Bollinger Bands and Fibonacci ratios
To-Do /Suggestions
For the script from Rashad - the colour scheme of the script makes it invisible in the lighter theme of the tradingview platform. To be able to use this script you have to be in the dark mode. In case you are more comfortable with the lighter theme of the trading view platform, you have to either change the theme or the colour scheme for better visualization.
Also, try to use another indicator like RSI to improve upon signal generation and filtering.
