Volatility

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Volatility

Volatility is a general term used to describe the magnitude, or speed, of historical price fluctuations independent of their direction. Generally, changes in volatility tend to indicate a change in prices.

The Volatility indicator can be used to confirm trends or changes in direction. Continuing trends will usually display lower levels of volatility, while higher levels of volatility will frequently be encountered around changes in direction.

Method of Calculation

The calculation of Volatility starts with the current interval's True Range, and then multiplies it by the preceding interval's volatility value, which was first adjusted by the periods setting.

True Range Calculation

Refer to the Average True Range topic for a full explanation of the formula used to determine the True Range.

Volatility Calculation

When the True Range is determined for each interval, then the Volatility calculation can be made, based on the prior day's Volatility level, and the number of periods set by the user.

The Volatility formula is as follows:

volformula.png

Note - Whenever the Period number is changed, the indicator will be recalculated and both the prior day's volatility level, as well as the current day's volatility level, will change.

User Settings

Period

The user can set the number of periods to use in the Volatility calculation.

The more periods used, the smoother the Volatility display will be.

Type in a whole number in the Periods text box in the Parameters tab of the Volatility Properties dialog box.

Display

The Volatility Range is displayed in an indicator window below the price chart.

The exact display of the plot is controlled on the Plots tabbed page of the Volatilities Properties dialog box.

The Style selected for the plot can be one of the following: Solid, Dashes, Dots, Points, Histogram or Step.

Once the style is selected the Color, Weighting and Visibility can also be controlled from this page.

The Scale's display is controlled from the Scale Settings and Scale Appearance tabbed pages.

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