Volatility Indicators

Volatility indicators, such as J Wells Wilder's Average True Range, attempts to measure the volatility of a security's price action. Day traders prefer increased volatility as the price are more volatile and more money can be gained (or lost) in a short time. Some of the popular volatility indicators include Bollinger Bands, Chaikin's Volatility, Relative Volatility Index (RVI), and Standard Deviation.

In addition to these indicators, the Chicago Board Options Exchange (CBOE) provides a few implied volatility indices, such as the widely used S&P 500 Volatility Index (VIX), the S&P 100 Volatility Index (VXO) and the NASDAQ-100 Volatility Index (VXN).


Average True Range (ATR)

ATR
Average True Range

Average True Range (ATR) is a volatility indicator developed by J Welles Wilder and is used to measure the volatility of a security's price movement and is based on absolute values rather than percentages. It was originally developed for use in trading commodities, which are frequently subject to gaps and limit moves. ATR takes opening gaps, limit moves, and small high-low ranges into account when determining what should be the 'true' price range of a commodity.

Although the ATR was designed for commodity trading, it can also be used to identify the ...

Bollinger Bands

Bollinger Bands
Bollinger Bands

Bollinger Bands is a volatility indicator that was developed by John Bollinger and is one of the most useful bands in technical analysis. Bollinger Bands can be used to confirm trading signals, and can also indicate overbought and oversold levels relative to a moving average (MA) of a security's price. Bollinger Bands consist of a simple moving average (SMA) and two standard deviations above and below the SMA.

During periods of volatility i.e., during increased price fluctuation, the upper and lower bands widen and when the price fluctuations decrease ...


Relative Volatility Index (RVI)

Relative Volatility Index
Relative Volatility Index

The Relative Volatility Index (RVI) is a volatility indicator based on the Relative Strength Index (RSI) indicator. It was developed by Donald Dorsey in the 1990s and is used to indicate the direction of volatility. It measures the standard deviation of the high and low prices of a security over a period of time with a time period of 10 being the default. It is often used as a confirmation for other indicators rather than on its own.

Once calculated, the RVI is plotted as an oscillator that ranges from 0 to 100, with a middle ...

Volatility Index (VIX)

Relative Volatility Index
Volatility Index (VIX)

The Volatility Index (VIX) is a complex volatility indicator based on the S&P 500 put and call options. The S&P options are the most traded securities on the Chicago Board Options Exchange (CBOE). VIX has been provided by the CBOE since 1993 to provide a measure of implied volatility for the broader market. VIX usually has an inverse relationship to the market as the value of VIX increases when the market declines and decreases when the market rises.

VIX can be used to anticipate the future direction of the market. When VIX is on an upward ...