Theory:
Volatility Quality (VQ) was initially developed by Thomas Stridsman. He designed it to work alongside two moving averages (you can check out his original work here for more details).
This Version:
Unlike the original approach, this version doesn't rely on averages for trend estimation. Instead, it focuses on the slope of the Volatility Quality. To streamline the number of signals—which can get overwhelming if VQ isn't filtered—this variant opts for a percentage of the Average True Range (ATR) as a filter. Here's why this method is beneficial:
- Using a fixed pip value as a filter can be effective for one currency pair but not for another.
- Switching time frames can make a pip-based filter ineffective since the range of movement in higher time frames is significantly different from that in lower ones. Setting your filter on one time frame and then testing it on another usually means you'll have to readjust.
- This indicator's use of ATR percentage for filtering automatically adapts it to different symbols and time frames.
Usage:
Look out for the color changes as signals when utilizing this indicator in your trading strategy.
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