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To determine the volatility of a financial time-series, such as stock close prices, the Chaikin Volatility trading indicator measures the range between high and low values. Unlike the ATR or Average True Range, this indicator does not consider gaps. Gaps are accounted by ATR because its formula calculates volatility based on current bar high and low prices in addition to yesterday's close price.
Chaikin Volatility was developed by Marc Chaikin. Other technical analysis indicators created by Marc include Chaikin A/D Line (QuantShare function: AD), Chaikin A/D Oscillator (QuantShare function: ADOsc), Chaikin Money Flow Indicator and Chaikin Volume Accumulation Oscillator.
Trading signals are generated when the volatility, as measured by this indicator, increases sharply then decreases. This indicates that the market lost interest and that a price reversal is occurring. An increase in volatility often indicates a market top or bottom.
The Chaikin Volatility function name is "ChaikinVol" and it is calculated by taking the 10 bar rate of change of a 10 bar exponential moving average based on the difference between the high and low prices. The exponential moving average period should be specified as the first parameter of this function and the volatility smoothing (Rate of change period) should be specified as the second parameter.
To plot the Chaikin Volatility on a chart, type:
plot(ChaikinVol(10,10), "", colorBlue);
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.
