Standard Deviation

Standard deviation is a trend trading indicator that is used to measure the size of the recent price  move of a security thus predicting how volatile the price of security may be in the near future.

standard deviation is considered to be part of bollinger band since both of them are based in volatility of the market.
standard deviation is calculated using the following steps;

-calculate the average price for the number of periods
-determine the deviation of each calculated period
-find the square of the deviation of each period
-find the sum of the deviation of each square
-divide the deviation sum by the number of  periods
-square root the value gotten from above to get the standard deviation


Since standard deviation is based on the volatility of the market,it therefore follows that when the value of the standard deviation is very high,that will be an indication of the market to have experience high volatility and this high volatility of the market may have start to decline.On the other hand,if the value of the standard deviation is very low,that will be an indication of the market being inactive thus experiencing low volatility and thus high volatility may be about to start.This is indicated as in the candle sticks chart below;



From the candle sticks chart above,there are 3 points,point A,B and C. Point A which has two red adjoining arrows represents the standard deviation curve while point B and C represent high volatility and inactivity of the market respectively. At point C,the market is inactive thus the candle sticks are close to each other thus a possibility of huge price change to take place .At point B,there is a huge price change in the market thus the candle sticks have moved far away from each other thus high market volatility has taken place over there thus a possibility of huge price change to start declining.
The standard deviation will not tell one when to enter or exit the market.It only helps one to know whether the market is active or inactive .

Recommendation: If you are a day trader,just use 1 min,5 min,15 min and 30 min time frame while if you are a swing trader just use 1 hour and above time frame if you want standard deviation trading tool to help you know well about market being active or inactive.








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