Theory:
As traders, we often find ourselves asking whether the market is in a calm state or buzzing with volatility. One common approach to gauge this is through standard deviations. However, the challenge lies in the absence of specific levels to indicate whether the market is experiencing low or high volatility. This is where the Volatility Ratio Indicator comes into play. Instead of using fixed levels, it employs floating (adaptive) levels, allowing for more nuanced readings, including a 'neutral' state that can be crucial for our trading decisions.
Usage:
It’s important to note that this indicator is not designed to show market direction. Think of it as your go-to tool for detecting volatility rather than assessing trends. For trend evaluation, you’ll want to pair this with another indicator and then use the Volatility Ratio to confirm whether the market conditions align with your expectations.
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