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The idea behind the volatility quality index is to discern bad and good volatility in order to create a better volatility indicator that can identify better trade opportunities.
This trading indicator is based on the true range and it is calculated using the latter indicator plus the open, close, high and low prices.
The function has no arguments and it creates and plots on the chart the following time-series:
- The sum of the volatility quality index values over the previous bar (Red Line)
- The 9-Bar simple moving average of the previous sum (Blue Line)
- The 200-Bar simple moving average of the previous sum (Green Line)
The volatility quality index function returns the first time-series.
This strategy generates a buy signal if the sum of the volatility quality index increased in the previous 10 bars. It generates a sell signal if the sum of the volatility quality index decreased in the previous five bars.
The volatility quality index was first introduced by Thomas Stridsman in Technical Analysis of Stocks and Commodities magazine in the August 2002 edition.
