Standard deviation

Add the Standard Deviation indicator in Quantower to measure price volatility and see how far price moves from its average

Description

Standard deviation indicator statistic measures the dispersion of a price relative to its mean (mathematical expectation) and is calculated as the square root of the variance. It is widely used in finance and trading regardless of asset class or market. For example, if trader calculates a standard deviation of his performance report as the result, he will receive the measurement of volatility of his balance and equity; the higher STD means the greater drawdown he can expect.

In the case of price movement, higher STD means higher volatility of an instrument; for example, if we compare two assets, the asset with higher standard deviation will be riskier for an investment.

Formula

Where: N - period of calculation(number of observations) x - price value

Most useful cases

• Volatility measurement - the most useful case of STD usage is to determine statistical volatility; understanding of this value is very useful to find the best positions of potential stop-loss and take-profit levels. It protects existing positions from small price fluctuations and random breakouts of levels.

• Divergence/Convergence - Divergence/Convergence pattern is a form of price action when a new high(low) of the price is not confirmed with a new high of STD. This is a very good approach to find a weakness in the existing trend.