Volatility Indicator

The ultimate reference number to show the market change

For many years our traders find themselves thinking how to measure the real market volatility. It is very common to look for VIX as the way market is behaving. Other can explain that volatility is totally linked with risk or fear of taking risk, bringing the analysis to as higher the volatility as harsh it gets. Since we haven’t found a good number to represent what volatility means we discovered a way to scale and show it in a market indicator. Our indicator is going back to the roots of volatility definition and used the statistics concepts over the price model.

Look for spikes

This indicator is very versatile, allowing the trader using it in several time frame charts or even bar charts where data series are range, tick or volume. One of the best results indeed for instruments like NQ, ES or YM is using VOLATILITY indicator over Tick Charts. That shows the real price movement and make it very easy to identify the spikes in the curve plot.

Spikes in the VOLATILITY indicator represent sharp market movements, helping the trader to jump on faster in a reliable position. This indicator can be combined with other directional indicators to confirm side or trend.


Quantifying

The red line represents the Volatility Reference Number over a bar chart. The absolute number can vary on bar data series, so it does not represent much. Find the time frame or trade collection you want to draw your bars. As longer your time frame is less variation you will have on the indictor numbers.

Set up parameters

Set the “Perio” parameter which is the periods or bars back. Quant-Wise algos has been using numbers in the Fibonacci Sequence like 5, 8, 13, 21, 34. After thousands of hours running backtests, we found these number have a representative approach.

Working together

Combine with other indicators: Volatility indicator shows if the market is trending but does not show the direction. In order to get a better decision to put your orders, you should use directional indicators like SMA, EMA or MACD. It is the best way to avoid false positive entry.