Identify Reversals with Adaptive Price Zones (APZ)

APZ adaptive price zones technical indicator

Adaptive Price Zones (APZ) is a volatility-based indicator designed to help identify possible reversal points. This can be especially useful in a choppy market where entries and exits are difficult to determine.

The APZ trading indicator was developed by Lee Leibfarth and was first introduced in the September 2006 issue of Technical Analysis of Stocks & Commodities. Similar to Keltner Channels and Bollinger Bands®, APZ is overlaid on a chart’s price data as a set of bands traders often use to time market entries and exits. The APZ tracks price fluctuations quickly, which is essential in volatile markets.

The upper and lower bands are calculated based on a short term double smooth exponential moving average (EMA). The bands form a channel which surrounds the average price creating the “zone” which traders can interpret to determine entries and exits. For example, as the price crosses above the upper band, this can signal an opportunity to sell in anticipation of a reversal. Conversely, as price crosses down through the lower band, this can signal an opportunity to buy in case of a potential turning point.

Watch NinjaTrader’s APZ indicator in Action:

Add the APZ Indicator to Your NinjaTrader Chart

Adding the APZ indicator to your NinjaTrader chart is easy:

  1. Right click within your chart and select Indicators
  2. Find APZ from the available list of indicators in the upper left-hand section
  3. Select the APZ indicator by double-clicking it, and click OK

The default period setting for the APZ indicator is 20, but this parameter is easily customized in the Indicators window. Additionally, the color, style and thickness of your upper and lower bounds can be set to your desired preferences.

Adaptive Price Zones

In the chart image above, the APZ indicator has been applied to an ES 60-minute chart. For additional clarification, red and green circles have been drawn to draw attention to where the price touches the upper and lower bands, respectively. These could be interpreted as potential buy points where the price touches the green line, and sell points where the price touches the red line.

Traders should always be cognizant of the financial risk involved in trading and the possibility of losing money. It should also be taken into consideration that indicators can produce false signals.

Using APZ with Other Technical Indicators

Using APZ in conjunction with other indicators can help to strengthen a trader’s thesis. In the example below, a MACD has been applied on the lower panel of the chart for further analysis.

Adaptive Price Zones

In this case, the price touching the lower APZ band could be interpreted as a buy point, and the MACD crossover a few minutes later confirms this. This is just one example of how APZ can be used in combination with other indicators to gain additional insight.

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