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Chapter 20, Part I. Intro to Breakouts and Fakeouts Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Commander in Pips: Sure, but not in all programs. For instance, MT4 does not have it built in. Still, we show the algorithm so you can program it yourself. What we’ve calculated is called Historical volatility. Here is the chart with this indicator:

    Chart #1 | Daily EUR/USD and Historical Volatility(10) indicator


    It shows yearly volatility that based on last 10 days. Here we can change number of periods that used for calculation. See – we do all correct, since indicator shows the same number that we’ve got in our manual calculation.

    Pipruit: Cool!. And how it will help us to trade breakouts?​

    Commander in Pips: We will speak about it a bit later. Now we’ve estimated what volatility is, and the first indicator for its calculation. Now let’s discuss others, they are more known than this one.

    MA is poor for volatility estimation

    Some traders use MA as indicator of volatility, precisely speaking - its slope and deviation of price from the MA’s line, since MA shows average price value for some predetermined period. But it’s worthy to note here that this method is not quite correct and mostly based on the sharp eyes of a trader rather than on some numbers. We need to see not the average price, but average percent deviation and MA does not show that. All that a trader could say is that if the market deviates too much from MA – then probably it will gravitate back to it. Second, if th slope of MA becomes greater – this usually happens when market turns to trend motion, then changes of prices will become greater and probably volatility has become greater. But using onlyMA, a trader could not tell that definitely, since even in the trend, volatility could decrease and as a rule decreases – just look at chart #1. So, for our purpose MA is a poor indicator. There are some much better indicators that are also known as well as MA. For example, there is Bollinger Bands…
    #1 Sive Morten, Dec 21, 2013
    Lasted edited by : Apr 23, 2016
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