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The Volatility Ratio is a technical analysis indicator used to detect wide-ranging days, days with an unusual distance between the high and low prices.
The Volatility Ratio is based on the True Range (TR) indicator and it is computed by dividing the current true range value by the N-Bar exponential moving average of the true range. The true range is the highest value among: today's high minus low, today's high minus yesterday's close and yesterday's close minus today's low.
Usually, traders consider that ranging day signals happen when volatility ratio is higher than 2. These signals may occur after price gaps or wide-ranging days and could indicate a likely reversal. The volatility ratio is generally used in combination with other trading indicators, such as a volume indicator, to confirm or not the breakout/reversal.
The Volatility Ratio indicator name is "volratio" and it contains one parameter which is the period used to calculate the exponential moving average of the true range. The default volatility ratio period is set to 14.
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.
