It is proclaimed that major price changes are associated with high volatility, whereas bottoming and consolidation are associated with decreasing volatility. A high volatility gives decisive indications that the price of an examined value fluctuates strongly, whereas a low volatility indicates a calm price development.
Considered on its own, the StA indicator does not provide any information about the direction of a price movement and should also only be combined with other indicators. The significance of the StA as a single indicator is limited.
The standard deviation or volatility increases. Accordingly, prices rise or fall significantly. Trend-following models should be used in chart analysis. If the StA falls, which signals bearish momentum. Everything indicates that a bottoming or consolidation is imminent. When StA generates a new high, a decline in volatility is likely to follow along with declining volatility in the prices of the corresponding securities.
Both the Relative Volatility Index (RVI) and the Relative Strength Index (RSI) can be traced back to the economist Donald Dorsey. With the RVI, which determines the fundamental volatility of a security, the standard deviation is observed over a period of ten days. The Relative Strength Index (RSI), on the other hand, calculates the dynamics of the volatility trend with regard to a 14-day period.
The Relative Volatility Index is intended to determine in which direction of the trend the volatility is greater, which trend direction is quasi the preferred one. Donald Dorsey assumed that in a trend, price fluctuations are greater on days with trend-directed movement than on days with movement against the trend.
When an uptrend is in progress, the range of price fluctuation will be higher on days that end positively and lower on days that close negatively. In a downtrend, the range of prices will be higher on days that close negative than on days that end positive.
As explained earlier, the Relative Volatility Index's measure of volatility in Exness mt5 is the standard deviation of prices. Generally speaking, standard deviation is a statistical measure used to determine the dispersion of data around a mean. A low standard deviation means that share prices are very narrowly distributed around their mean value.
Accordingly, there is then a low fluctuation range. Such situations often occur after strong price movements, when the market is still undecided about how to proceed.
A large standard deviation means that prices are widely spread around the mean. This means that there is a lot of movement in the market. Such situations often occur at the beginning of a trend or in the course of large corrective movements.