Chart-Formations.com

Wealth Warning

Trading equities, options, derivatives, currencies and cryptocurrencies, commodities or any other financial security can offer significant returns BUT it can also result in significant losses if the market moves against your position. It requires a strong commitment to skill development, knowledge acquisition, and emotional control. It should be treated as a business with a clear business plan, proper risk analysis, and a defined set of attainable goals. The risk associated with trading the vagaries of the stock markets is probably the most important consideration as it has a profound effect on a trader's emotional control. You should not trade the stock markets with money you cannot afford to lose as there is considerable exposure to risk in any stock market transaction.

Furthermore, the past success of any trading method, strategy, or system is only indicative of future success. Under no circumstances should past success be misconstrued as a guarantee of future success!

Unless otherwise specified, the trading systems and strategies discussed on this website are intended for educational purposes only and are not meant to recommend or promote any trading system or strategy. You are expected to do your own research and testing to determine the validity of a trading method, system, or strategy on the market and instrument you wish to trade.

Volatility Indicators

Volatility indicators, such as J Wells Wilder's Average True Range (ATR), 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 Volatility Index (VIX), the S&P 100 Volatility Index (VXO) and the NASDAQ-100 Volatility Index (VXN).

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 open up and widen, and as the price fluctuations reduces, the upper and lower bands begin to contract. A trade signal is generated when the price action breaks out of constricted Bollinger Bands, though, the initial break out is often a false signal ...