Volatility Bar indicator is VertexFX client-side indicator that depicts the price volatility as colour coded bars providing a quick and clear visual depiction of volatility.
Volatility is normally depicted as a line (indicator). However, this Volatility Bar indicator displays volatility as colour coded bars (BLUE, GREEN, RED and YELLOW). This indicator should be used in conjunction with other indicators as it does not provide entry/exit signals on its own.
This indicator is calculated in three steps. In the first step we calculate the volatility range, which is difference between the Highest High and Lowest Low over the recent LOOKBACK_BARS period, represented in points. This value is then divided by the COEFFICIENT. In the next step we calculate the Smoothed Fourier transform (SFV) of the volatility range we calculated in the previous step. The purpose of this step is to reduce the effect whipsaws. The Smoothed Fourier Transform is calculated using the recent sixteen (16) bars, multiplying each with a separate co-efficient and then adding the resultants.
Finally, this Smoothed Fourier Volatility is displayed as colour coded bar in four possible colours, namely,
BLUE – Smoothed Fourier Volatility is above THRESHOLD and rising.
GREEN – Smoothed Fourier Volatility is above THRESHOLDbut falling.
RED – Smoothed Fourier Volatility is below THRESHOLD and falling.
YELLOW – Smoothed Fourier Volatility is below THRESHOLD and rising.
As mentioned earlier, this indicator does not provide entry and exit signals. However, traders can enter in the direction of the trend when the indicator changes from GREEN to BLUE.