Moving Standard Deviation

Moving Standard Deviation is a statistical measurement of market volatility. It makes no predictions of market direction, but it may serve as a confirming indicator. You specify the number of periods to use, and the study computes the standard deviation of prices from the moving average of the prices.

It is derived by calculating an ‘n’ time period Simple Moving Average of the data item. It then sums the squares of the difference between the data item and its Moving Average over each of the preceding ‘n’ time periods. Finally, it divides this sum by ‘n’ and calculates the square root of this result.

Properties

Period: The number of bars in a chart. If the chart displays daily data, then period denotes days; in weekly charts, the period will stand for weeks, and so on. The application uses a default of 20.

Aspect: The Symbol field on which the study will be calculated. Field is set to “Default”, which, when viewing a chart for a specific symbol, is the same as “Close”.

Interpretation

Standard Deviation values rise significantly when the analyzed contract of indicator change in value dramatically. When markets are stable, low Standard Deviation readings are normal.

Low Standard Deviation readings typically tend to come before significant upward changes in price. Analysts generally agree that high volatility is part of major tops, while low volatility accompanies major bottoms.

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