Standard Deviation [SD]

#volatility #statistics 

Inventor: Karl Pearson (statistical concept) 

The basic statistical measure of how much price is jumping around its average. Small readings mean closes are staying near the average (calm market); large readings mean closes are scattered far from it (wild market). It is the engine inside Bollinger Bands, and on its own works as a clean volatility line. 

Default period: 10 

Rising line indicates volatility increasing. Falling line indicates volatility decreasing. 

This indicator does not give direction. Pair it with a trend or breakout signal. 

Useful readings: 

Reading at multi-month low: Very calm market, big move loading 

Reading shooting up: A strong move has started 

Reading very high after a long move: Emotional extreme, moves often exhaust here 

Reading falling after a spike: Market settling, range conditions returning 

Rising while price breaks a level: Breakout has real force 

Each stock has its own normal level; compare with its own history, not other stocks 

Objective rules: 

Expansion: Standard Deviation crosses above its 10-period average. 

Contraction: Standard Deviation crosses below its 10-period average. 

Squeeze breakout: Reading at 100-bar low, trade the next price breakout with the trend 

Climax rule: Reading at 100-bar high, avoid fresh entries in the move’s direction, tighten stops 

Risk rule: When the reading doubles from its recent low, halve fresh position size 

What makes it unique: 

It is the raw statistical measure that most volatility tools quietly contain. Reading it directly shows the market’s temperature with no packaging. 

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder on RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

 

The indicator is applicable to all types of charting. It is calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin-Ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.