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What volatility indicators out there are coded for MT4 that I can use other than the Bollinger bands? Please post links if you can. I'm looking for a way to better place my stops based on market volatility
Does anyone know a link where I can find the 6/100 Historical Volatility indicator for metatrader4 ? The 6/100 Historical Volatility indicator is mentioned in Steet Smarts by Linda Bradford Raschke and Connors
I knew a trader who used these volatility bands to daytrade the e-minis for many years. The lines were extremely responsive and coupled with something simple like stochastics or candlestick patterns, he made some of the most amazing trades, which at the time, seemed like alchemy. I have spent the past few years trying to find something which works in the same manner as consistently as these did for the e-minis.
Now that WHCtrader has implemented the free access to very good real time futures data, I think its time to propose this to the forum as a worthwhile pursuit.
The reason I mention the futures is that, as you will see the plotting the of the bands requires the implied volatility reading each day to draw the bands. This info is readily available on a centralized market but less so for the forex market.
Anyways, the math is interesting because it uses standard deviations but instead of a breakout indicator, it uses it as a cap for the daily range--my preferred way of viewing the mkt.
Any takers? I suppose it might be necessary to manually input the IV number each day via the web but it's hardly a hassle if the levels prove valid.
The explanation of the method follows below: Applying Standard Deviation to Equities
Stock prices are statistically like "votes," indicating the prices that have been paid for the stock to be bought and sold. By examining the range of the stock prices over one day, and graphing the prices based on how many shares (volume) changed hands at that price, we get a curve which may, or may not, look like a normal curve. In strongly trending markets, the curve may be almost flat - a steady increase or decrease in price with no major volume spikes, for example. However, in a consolidating (sideways channeling) market where the prices go up and down, the curve more closely is represented by a bell curve.
Applying Volatility Bands
Use the Implied Volatility Index for "yesterday's" option puts and calls (from IVolatility.com) to calculate the Standard Deviation, which is applied to "yesterday's" closing price to predict price ranges or channels for "today." As the Implied Volatility values for puts and calls get further apart, the price ranges increase. When the Implied Volatility values are closer to the same value (indicating that buyers and sellers of options are in closer agreement as to the future value), the price ranges decrease. The VBand calculator determines price ranges based on this volatility.
How do you use VBand values?
As published by Kevin Haggerty and others, the Volatility Bands provide a price at which you might expect support or resistance. For example, you could expect that 68% of the time (over MANY samples) that the price would stay within the 1.0 Standard Deviation range (from Standard Deviation -1.0 to 1.0). You could expect that the price would stay within the 2.0 Standard Deviation range 95% of the time. Just like Fibonacci Retrace levels, the VBand price values provide a slightly more likely place where the price of the stock will reverse to stay within the VBand. These values should NOT be treated as absolute brick-wall price barriers. However, the VBands will provide a price range in which statistically the price will remain.
When trading stocks, you may find several price points at which you think that the stock will likely be supported or provide resistance - that is, price points where the price is too far extended from where you think it should be, and where it will likely reverse to get back to more of a "reasonable" value. You might calculate these price points using Pivots, Fibonacci retrace values, VBands, trend lines, moving averages, previous support and resistance levels, or any of many other techniques. As with any of these other price point calculations, you should always look to other indicators for confirmation. Just because a price is approaching a VBand doesn't necessarily mean that it WILL reverse. However, if it's also approaching a moving average, or a previous support or resistance level, then your confidence level will increase.
you probably know about this, but i have to say it: price distribution is not "normal" (meaning, gaussian) so even if you calculate a standard deviation i don't know how relevant it would be. what you really get when you calculate the standard deviation using the classic formula is not the REAL st. dev. of the price, but only an uncertain estimate... if you know what i mean.
i don't think this is relevant to the price action. i've been there. but it's your call.
Quote:
Originally Posted by mezarashii
I knew a trader who used these volatility bands to daytrade the e-minis for many years. The lines were extremely responsive and coupled with something simple like stochastics or candlestick patterns, he made some of the most amazing trades, which at the time, seemed like alchemy. I have spent the past few years trying to find something which works in the same manner as consistently as these did for the e-minis.
Now that WHCtrader has implemented the free access to very good real time futures data, I think its time to propose this to the forum as a worthwhile pursuit.
The reason I mention the futures is that, as you will see the plotting the of the bands requires the implied volatility reading each day to draw the bands. This info is readily available on a centralized market but less so for the forex market.
Anyways, the math is interesting because it uses standard deviations but instead of a breakout indicator, it uses it as a cap for the daily range--my preferred way of viewing the mkt.
Any takers? I suppose it might be necessary to manually input the IV number each day via the web but it's hardly a hassle if the levels prove valid.
The explanation of the method follows below: Applying Standard Deviation to Equities
Stock prices are statistically like "votes," indicating the prices that have been paid for the stock to be bought and sold. By examining the range of the stock prices over one day, and graphing the prices based on how many shares (volume) changed hands at that price, we get a curve which may, or may not, look like a normal curve. In strongly trending markets, the curve may be almost flat - a steady increase or decrease in price with no major volume spikes, for example. However, in a consolidating (sideways channeling) market where the prices go up and down, the curve more closely is represented by a bell curve.
Applying Volatility Bands
Use the Implied Volatility Index for "yesterday's" option puts and calls (from IVolatility.com) to calculate the Standard Deviation, which is applied to "yesterday's" closing price to predict price ranges or channels for "today." As the Implied Volatility values for puts and calls get further apart, the price ranges increase. When the Implied Volatility values are closer to the same value (indicating that buyers and sellers of options are in closer agreement as to the future value), the price ranges decrease. The VBand calculator determines price ranges based on this volatility.
How do you use VBand values?
As published by Kevin Haggerty and others, the Volatility Bands provide a price at which you might expect support or resistance. For example, you could expect that 68% of the time (over MANY samples) that the price would stay within the 1.0 Standard Deviation range (from Standard Deviation -1.0 to 1.0). You could expect that the price would stay within the 2.0 Standard Deviation range 95% of the time. Just like Fibonacci Retrace levels, the VBand price values provide a slightly more likely place where the price of the stock will reverse to stay within the VBand. These values should NOT be treated as absolute brick-wall price barriers. However, the VBands will provide a price range in which statistically the price will remain.
When trading stocks, you may find several price points at which you think that the stock will likely be supported or provide resistance - that is, price points where the price is too far extended from where you think it should be, and where it will likely reverse to get back to more of a "reasonable" value. You might calculate these price points using Pivots, Fibonacci retrace values, VBands, trend lines, moving averages, previous support and resistance levels, or any of many other techniques. As with any of these other price point calculations, you should always look to other indicators for confirmation. Just because a price is approaching a VBand doesn't necessarily mean that it WILL reverse. However, if it's also approaching a moving average, or a previous support or resistance level, then your confidence level will increase.
If you take a look at the exact theory it is not a standard deviation of price but the implied volatility of the corresponding options market. So in a sense it is a distribution of the buying and selling habits of option buyers. Anyways, I will never know the relevance unless a coder steps up and gives it a shot. I've got no coding skills to speak of =(
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