This indicator is based loosly upon the Stocks and Commodities Magazine V 23:2 (14-20) article "The Truth About Volatility".
This indicator has two lines drawn in the main chart window:
- Volatility Long Entry Indicator
- Volatility Short Entry Indicator
Functional Description of Volatility Entry and Profit Indicator:
Long Signal: C>(LLV(L,20) + 2*ATR(10))
If the Close (C) is greater than the lowest low value (LLV based on the low of the last 20 periods) plus twice the 10-period ATR, then Long Signal.
Short Signal: C<(HHV(H,20)-2*ATR(10))
If the Close (C) is less than the highest high value (HHV based on the high of the last 20 periods) minus twice the 10-period ATR, then Short Signal.
How It Is Used in Trading
It must be used together with a Trend Following Indicator such as Moving Average.
- BUY when the VolatilityEntry Indicator gives a Long Signal AND the currency is also in an up-trend
- SELL when the VolatilityEntry Indicator gives a Short Signal AND the currency is also in a down-trend
Use Trailing Stop or Take Profit to exit trades.
Basically, this indicator attempts to profit by trading following the completion of brief counter-trends in anticipation that the primary trend will resume.