Xeimuken
New Member
Remembering the classical market truth, it is possible to consider that if «trend is my friend», then volatility is dangerous, but a very favorable partner in business. In case of reasonable use the volatility indicators allowing not only to earn effectively but also to leave from losses in time.
«To catch» a trend right at the beginning − it is a great luck even for professionals, of course, if only you not the market maker and don't create this trend independently. The most part of the market time the price moves in the side direction, but the range of fluctuations can be sufficient to earn decently.
Real, useful to the trader, volatility depends on the following factors:
1) Aroon Up & Down
The advancing indicator for the definition of price extrema, the directions of the market and its ability to a turn. It isn't escaped even by insignificant price fluctuations and strengthening/weakening of a tendency within the time period: the indicator shows effectively all main conditions of the market, including price gaps.
View attachment 8634
2) LWMA ATR indicator
This is the option in which the method of smoothing of the average true range is changed. In the standard version, it is used simple smoothing, therefore, all piece of calculation is averaged equally. But the current volatility of an asset can change considerably in different trading days and even in different trading sessions. At high current volatility, the installation «too average» from the point of view of standard ATR stops /profits can be not favorable.
The LWMA ATR volatility indicator applies linearly weighed smoothing method, that is the last closed bars (the end of the range) have a greater influence on average value. Current volatility is so more precisely estimated that gives the chance not only for successful entrance but also the correct calculation of stop loss. In addition to the standard for ATR, Multiplier – adaptive coefficient for calculation of stop (value 1 = 100%) is added to a set of parameters.
View attachment 8636
View attachment 8637
The LWMA ATR indicator doesn't give trade signals and can be used only as the global filter as a part of trade strategy.
3) ATR Ratio indicator
This version of the indicator has been created for the more accurate filter of turn points. The indicator contains parameters for quickly ATR (short_atr), slow ATR (long_atr) and the basic line (triglevel). The indicator of ATR Ratio is the relation of values of quickly ATR (usually − with the period 7) to slow (49), and, therefore, short_atr value usually is selected multiple to long_atr.
View attachment 8638
In case of a sharp jump of the value, the indicator warns about forthcoming change of the current tendency. Low ATR Ratio values (less than 1) mean weak, and value reduction − the falling volatility. That is the entrance to transactions isn't recommended as there are no strong movements in the market (flat).
If the indicator grows and breakthrough the level 1, then it is considered that volatility grows and it is possible to open towards the movement of the price. The stronger the indicator grows, the trend turn is closer.
Even when using this indicator in complex trade strategy all values below of level 0.87 – are ignored. During such periods we look for trade signals on other indicators.
4) TRVI indicator
It is an effective modification of RVI volatility indicator, but the standard idea is the farther indicator lines move away from zero level, the trend is considered strong, and the movement near the line is considered an indicator of a flat.
View attachment 8641
The TRVI indicator operates by the same principle, but dynamics of its values sharper, that can be useful on the periods, bigger than by default. Even the slightest changes will be visible in the form of sharp impulses, and on standard RVI it occurs smoothly and barely noticeable. The parameters are the same – only colors of lines and the period of calculation.
View attachment 8642
The TRVI indicator always specifies not only the direction of the current trend but also his force at the moment. Its extreme values (too high or low) speak about finishing the trend and transition in a condition of a flat.
5) Kaufman volatility indicator
For the first time, it has been described by the author in the book «Smarter Trading» together with the adaptive sliding of the same name. The adaptive mathematical ideas of Perry Kaufman allow to filter very effectively market noise and to reveal the origin of a trend in the externally quiet market. It allows to enter in most cases at the start of the movement and to be closed at the slightest hint on flat
View attachment 8643
The indicator was originally created for trade in the market by options, but there was very convenient for more volatile spot market, especially for a medium-term position trade.
6) TDI indicator (Traders Dynamic Index)
It helps to estimate various aspects of the market: trend force, direction and volatility. Sometimes there is no the volatility indicator in a standard set of trade terminal, but its various options are freely available in the network.
View attachment 8644
It consists of several basic lines on the basis of standard tools (colors − traditional, in brackets − parameters by default):
View attachment 8645
Within the most part of the market time, the yellow line moves between values 32 and 68. They will define both turns, and levels of tops/hollows. If the line moves lower than the level 32, then its breakthrough of level from below up means a turn towards bulls, the line higher than the level 68 means achievement of top and breakthrough of level from top to down will lead to a strengthening of bears.
For the estimation of the force of the market and volatility:
And as the conclusion …
Volatility can quite become a friend, but it always needs to be considered and as serious rival, and, therefore, reliable volatility indicators surely have to be a part of any steadily working trade strategy.
A big thanks to Anna Collins & Dewin Forex for sharing the work!
ALL INDICATORS MENTIONED ABOVE ARE AVAILABLE FOR FREE. JUST SEARCH IT ON THE WEB. CHEERS!
«To catch» a trend right at the beginning − it is a great luck even for professionals, of course, if only you not the market maker and don't create this trend independently. The most part of the market time the price moves in the side direction, but the range of fluctuations can be sufficient to earn decently.
Real, useful to the trader, volatility depends on the following factors:
- historical volatility − the higher it now, the higher, perhaps, will be expectations of rather future dynamics;
- political and economic situation (elections, publications of statistics, the general condition of the economy and other factors);
- asset liquidity (demand/offer) of the market − if the offer exceeds demand, the prices fall, and vice versa;
- the total amount of transactions and activity of speculation on a concrete asset.
- the behavior of the price in a zone of strong technological levels and population mean of market instability;
- trade mode (time of a trading session, day of the week).
1) Aroon Up & Down
The advancing indicator for the definition of price extrema, the directions of the market and its ability to a turn. It isn't escaped even by insignificant price fluctuations and strengthening/weakening of a tendency within the time period: the indicator shows effectively all main conditions of the market, including price gaps.
View attachment 8634
2) LWMA ATR indicator
This is the option in which the method of smoothing of the average true range is changed. In the standard version, it is used simple smoothing, therefore, all piece of calculation is averaged equally. But the current volatility of an asset can change considerably in different trading days and even in different trading sessions. At high current volatility, the installation «too average» from the point of view of standard ATR stops /profits can be not favorable.
The LWMA ATR volatility indicator applies linearly weighed smoothing method, that is the last closed bars (the end of the range) have a greater influence on average value. Current volatility is so more precisely estimated that gives the chance not only for successful entrance but also the correct calculation of stop loss. In addition to the standard for ATR, Multiplier – adaptive coefficient for calculation of stop (value 1 = 100%) is added to a set of parameters.
View attachment 8636
View attachment 8637
The LWMA ATR indicator doesn't give trade signals and can be used only as the global filter as a part of trade strategy.
3) ATR Ratio indicator
This version of the indicator has been created for the more accurate filter of turn points. The indicator contains parameters for quickly ATR (short_atr), slow ATR (long_atr) and the basic line (triglevel). The indicator of ATR Ratio is the relation of values of quickly ATR (usually − with the period 7) to slow (49), and, therefore, short_atr value usually is selected multiple to long_atr.
View attachment 8638
In case of a sharp jump of the value, the indicator warns about forthcoming change of the current tendency. Low ATR Ratio values (less than 1) mean weak, and value reduction − the falling volatility. That is the entrance to transactions isn't recommended as there are no strong movements in the market (flat).
If the indicator grows and breakthrough the level 1, then it is considered that volatility grows and it is possible to open towards the movement of the price. The stronger the indicator grows, the trend turn is closer.
Even when using this indicator in complex trade strategy all values below of level 0.87 – are ignored. During such periods we look for trade signals on other indicators.
4) TRVI indicator
It is an effective modification of RVI volatility indicator, but the standard idea is the farther indicator lines move away from zero level, the trend is considered strong, and the movement near the line is considered an indicator of a flat.
View attachment 8641
The TRVI indicator operates by the same principle, but dynamics of its values sharper, that can be useful on the periods, bigger than by default. Even the slightest changes will be visible in the form of sharp impulses, and on standard RVI it occurs smoothly and barely noticeable. The parameters are the same – only colors of lines and the period of calculation.
View attachment 8642
The TRVI indicator always specifies not only the direction of the current trend but also his force at the moment. Its extreme values (too high or low) speak about finishing the trend and transition in a condition of a flat.
5) Kaufman volatility indicator
For the first time, it has been described by the author in the book «Smarter Trading» together with the adaptive sliding of the same name. The adaptive mathematical ideas of Perry Kaufman allow to filter very effectively market noise and to reveal the origin of a trend in the externally quiet market. It allows to enter in most cases at the start of the movement and to be closed at the slightest hint on flat
View attachment 8643
The indicator was originally created for trade in the market by options, but there was very convenient for more volatile spot market, especially for a medium-term position trade.
6) TDI indicator (Traders Dynamic Index)
It helps to estimate various aspects of the market: trend force, direction and volatility. Sometimes there is no the volatility indicator in a standard set of trade terminal, but its various options are freely available in the network.
View attachment 8644
It consists of several basic lines on the basis of standard tools (colors − traditional, in brackets − parameters by default):
- the green line is the RSI line with the RSI_Period (13) parameter;
- the red line − moving average from the above mentioned RSI line with the RSI_Price_Line (2) parameter;
- blue lines – volatility bounds (Bollinger) from the RSI line with the Volatility_Band parameter, 34 is considered as a standard value, but usually, it is reduced;
- the yellow line – the main direction of the market, average on all above mentioned, the Trade_Signal_Line (7) parameter.
View attachment 8645
Within the most part of the market time, the yellow line moves between values 32 and 68. They will define both turns, and levels of tops/hollows. If the line moves lower than the level 32, then its breakthrough of level from below up means a turn towards bulls, the line higher than the level 68 means achievement of top and breakthrough of level from top to down will lead to a strengthening of bears.
For the estimation of the force of the market and volatility:
- if blue lines disperse, and green has long inclinations up/down, then there is an activity at the market, at least, above average and perhaps strong trend movement.
- if the blue channel is narrowed and the green line has the short movements up/down – there is flat in the market.
And as the conclusion …
Volatility can quite become a friend, but it always needs to be considered and as serious rival, and, therefore, reliable volatility indicators surely have to be a part of any steadily working trade strategy.
A big thanks to Anna Collins & Dewin Forex for sharing the work!
ALL INDICATORS MENTIONED ABOVE ARE AVAILABLE FOR FREE. JUST SEARCH IT ON THE WEB. CHEERS!
