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Market Volatility - Composite Indicator using Stocks Standard Deviation
Standard deviation is a well-known measure of volatility of an investment or an asset. The volatility measures the dispersion of a set of data from its mean, it does not tell us about the direction of the market or the asset.
The volatility of a stock is calculated by taking the standard deviation of the one-bar rate of return of that stock.
The Market Volatility Composite returns the ratio of the number of stocks with increasing 10-bar standard deviation to the number of stocks with decreasing 10-bar standard deviation. Above one, the composite indicates that there are more stocks with increasing volatility than stocks with decreasing volatility and this is a sign that the market volatility has increased.
This composite is a short-term volatility indicator because values move above and below the base line (1) several times each month. By updating this market indicator and setting a higher period for the standard deviation function, you can transform this composite into a medium or long-term indicator of market volatility.
It is also possible to reduce the number of oscillations of the composite by smoothing it using a simple or an exponential moving average.
This market volatility composite creates a ticker symbol whose name is _MARKET_STDEV.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
