Look for sharp increases in volatility prior to market tops and bottoms, followed by low volatility as the market loses interest.
Mouse over chart captions to display trading signals.
- A Chaikin Volatility peak occurs as the market retreats from a new high and enters a trading range.
- The market ranges in a narrow band - note the low volatility.
The breakout from the range is not accompanied by a significant rise in volatility.
- Volatility starts to rise as price rises above the recent high.
- A sharp rise in volatility occurs prior to a new market peak.
- The sharp decline in volatility signals that the market has lost impetus and a reversal is likely.
See Indicator Panel for directions on how to set up Chaikin Volatility. The default settings are:
- H-L period of 10 days
- Volatility smoothing - 10 days
To alter the default settings - see Edit Indicator Settings.
To calculate Chaikin Volatility:
First, calculate an exponential moving average (normally 10 days) of the difference between High and Low for each period:
Next, calculate the percentage change in the moving average over a further period (normally 10 days):
( EMA [H-L] - EMA [H-L 10 days ago] ) / EMA [ H-L 10 days ago] * 100