Key features and settings
The following scenarios are qualified as indecision candles: inside candles, indecision engulfing candles and volatility shifts.
The more suppression, the more tension is built and eventually released as a spike or series of spikes in volatility. Each volatility pattern is assigned an influence period, during which average and peak relative volatility is recorded and stored to volatility metrics.
By default, each indecision candle is considered a valid pattern only when another indecision candle has taken place within 3 periods, e.g. prior inside candle + indecision engulfing candle = valid volatility pattern.
This measurement is taken to filter noise by looking for multiple hints of pending volatility, rather than just one. Level of tolerated noise can be changed via input menu by using sensitivity setting, by default set to 2.
Adjusting sensitivity
For candle patterns, the following sensitivity settings are applied:
Sensitivity at 1
Any single indecision candle is considered a valid pattern
Sensitivity at 2
2 indecision candles within 3 bars is considered a valid pattern
Sensitivity at 3
2 indecision candles within 2 bars (consecutive) is considered a valid pattern
The following scenarios are qualified as range patterns: series of lower highs/higher lows and series of low volatility pivots.
A pivot is defined by highest/lowest point in price, by default within 2 periods back and 2 periods forward. When 4 pivots with qualities mentioned above are found, a box indicating compressed range will appear. Both required pivots and pivot definition can be adjusted via input menu.
Influence time and metrics
By default, influence time for each volatility pattern is set to 6 candles, a period for which spike(s) in volatility is expected. For each influence period, average relative volatility (volatility relative to volatility SMA 20) and peak relative volatility is recorded and stored to volatility metrics.
All metrics used in calculations are visible in "Data Window "tab. Average and peak volatility during influence period will vary depending on chart, timeframe and chosen settings. Tweaking the settings might result in an improvement and is worth experimenting with.
Key features and settings
The following scenarios are qualified as indecision candles: inside candles, indecision engulfing candles and volatility shifts.
The more suppression, the more tension is built and eventually released as a spike or series of spikes in volatility. Each volatility pattern is assigned an influence period, during which average and peak relative volatility is recorded and stored to volatility metrics.
By default, each indecision candle is considered a valid pattern only when another indecision candle has taken place within 3 periods, e.g. prior inside candle + indecision engulfing candle = valid volatility pattern.
This measurement is taken to filter noise by looking for multiple hints of pending volatility, rather than just one. Level of tolerated noise can be changed via input menu by using sensitivity setting, by default set to 2.
Adjusting sensitivity
For candle patterns, the following sensitivity settings are applied:
Sensitivity at 1
Any single indecision candle is considered a valid pattern
Sensitivity at 2
2 indecision candles within 3 bars is considered a valid pattern
Sensitivity at 3
2 indecision candles within 2 bars (consecutive) is considered a valid pattern
The following scenarios are qualified as range patterns: series of lower highs/higher lows and series of low volatility pivots.
A pivot is defined by highest/lowest point in price, by default within 2 periods back and 2 periods forward. When 4 pivots with qualities mentioned above are found, a box indicating compressed range will appear. Both required pivots and pivot definition can be adjusted via input menu.
Influence time and metrics
By default, influence time for each volatility pattern is set to 6 candles, a period for which spike(s) in volatility is expected. For each influence period, average relative volatility (volatility relative to volatility SMA 20) and peak relative volatility is recorded and stored to volatility metrics.
All metrics used in calculations are visible in "Data Window "tab. Average and peak volatility during influence period will vary depending on chart, timeframe and chosen settings. Tweaking the settings might result in an improvement and is worth experimenting with.
How to use Volatility patterns in trading
Volatility patterns depict moments of equal strength from both bulls and bears. While this equilibrium is in place, price is stagnant and compresses until either side initiates volatility, releasing the built up tension.
On top of hedging and playing the volatility using volatility based instruments, some other methods can be applied to take advantage of the somewhat tricky areas of indecision.
Detecting and trading volatility
Volatility is not a bad thing from a trading perspective, but can actually be fertile ground for executing trade setups. Trading volatility influence periods from higher timeframes on lower timeframes gives greater resolution to work with and opportunities to take advantage of the wild swings created.
Determine bias for patterns using ranges
Points of confluence where it anyway makes sense to favor one side over the other can be used for establishing bias for indecisive price action as well. At face value, it makes sense to expect bearish reactions at range highs and bullish reactions at range low, for which volatility patterns can provide a catalyst.
Betting on initiation direction
Betting on direction of the first volatile move can easily go against you, but if risk/reward is able to compensate for the poor win rate, it's a valid idea to consider and explore.
How to use Volatility patterns in trading
Volatility patterns depict moments of equal strength from both bulls and bears. While this equilibrium is in place, price is stagnant and compresses until either side initiates volatility, releasing the built up tension.
On top of hedging and playing the volatility using volatility based instruments, some other methods can be applied to take advantage of the somewhat tricky areas of indecision.
Detecting and trading volatility
Volatility is not a bad thing from a trading perspective, but can actually be fertile ground for executing trade setups. Trading volatility influence periods from higher timeframes on lower timeframes gives greater resolution to work with and opportunities to take advantage of the wild swings created.
Determine bias for patterns using ranges
Points of confluence where it anyway makes sense to favor one side over the other can be used for establishing bias for indecisive price action as well. At face value, it makes sense to expect bearish reactions at range highs and bullish reactions at range low, for which volatility patterns can provide a catalyst.
Betting on initiation direction
Betting on direction of the first volatile move can easily go against you, but if risk/reward is able to compensate for the poor win rate, it's a valid idea to consider and explore.
Get Volatility patterns on TradingView
Find TradingView indicators easily by opening up any chart on TradingView (e.g. TSLA) and clicking Indicators tab on top menu. To find all our tools, search "quantifytools" and click an indicator to add to your chart.
TradingView page
Volatility patterns on TradingView ↗
Get Volatility patterns on TradingView
Find TradingView indicators easily by opening up any chart on TradingView (e.g. TSLA) and clicking Indicators tab on top menu. To find all our tools, search "quantifytools" and click an indicator to add to your chart.
TradingView page
Volatility patterns on TradingView ↗
