Volatility is definitely one of the most important factors to consider when trading FX.
Volatility changes depending on the time of day and often increases rapidly when important news is announced.
This "Volatility" indicator for Metatrader 4, introduced and available for free download here, is an indicator that can quantitatively analyze the volatility in the market.
Example of displaying this indicator on the EURUSD hourly chart
This indicator shows the degree of volatility in a line displayed in the sub-window of the main chart.
As shown in the image on the right, when the value of this indicator is high, it can be seen that the fluctuation of the market price of the currency pair is also increasing.
The formula of this indicator is as follows:
Volatility = (UpPrice-DownPrice) / N / Point
- Point is the minimum fluctuation range of the currency pair. E.g., It is 0.001 for USDJPY usually. Note, however, that this can differ for each currency pair / FX Broker.
- N is the period used for calculation. Specified by parameter N.
- UpPrice = highest price in the past N periods
- DownPrice = lowest price in past N periods
This indicator is highly effective for analyzing volatility.
"The higher the value of this indicator = the higher the volatility". There are trading strategies that will or will not work if volatility is too high or too low. So, if the volatility at a given moment indicates that a strategy will not work well then you may want to add a trading rule such as "do not trade if volatility is high".
Also, if volatility is increasing sharply, the price move may be an overshoot. In such a case, you may want to look for setting up a contrarian trade.
- Period N - The period used for the indicator’s calculation
Download the "Volatility" indicator from the button below
Tip: Can’t open the downloaded archive file (ZIP or RAR)?
Do you need help with installing this indicator into MT4 for Windows or Mac OS? Our guide HERE will help you.