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Percent High Low Range as a measure of stock volatility
The High-Low range technical indicator returns the percentage of maximum increase in a stock or security during the previous N trading days. To measure this, it calculate the percentage increase during the previous N bars from the lowest value to the highest value, that is, the highest value over a specified period (HHV function) divided by the lowest value over a specified period (LLV function).
This technical analysis tool can be used as a measure of the volatility of a stock. The higher the returned value is the wider the movement of the stock was in the previous N bars.
The trading indicator allows you to enter the period that is used to compute the percentage increase from the high price to the low price. To use a 20 bar period, you may type:
HighLowRange(20)
In a trend following system, a great way to detect stocks that are trending with little volatility is to search for the ones that, during a specific period, are increasing with a low high-low range value.
Example of trading rules:
Stock increased by more than 10% during the previous 30 trading days (perf(close, 30) > 10)
Stock has a high-low percentage range value lower than 10%. Stock with little volatility. (HighLowRange(30) < 10)
When creating a system using these trading rules, the application will only use stocks that have been increasing steadily with very little volatility over the preceding 30 bars.
For a short trading system, you can screen for stocks that decreased by a specific percentage amount during the last N days and that have a very low high-low percentage range.
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.
