Concept
Volatility Ratio
Volatility Ratio is a Volatility concept. The Library holds 3 implementations, each one a working definition you can pull into Quant.
Schwager
Top Volatility Ratio indicators
3 total
What is the Volatility Ratio?
The Volatility Ratio compares one volatility reading against a baseline to show, in a single number, whether conditions are unusually active. A widely cited version comes from Jack Schwager, who used the ratio of today's true range to the true range of the recent past to define wide-ranging days: bars that cover an outsized share of recent movement. Implementations vary in the denominator, some using the average true range of the window and others the window's full span, so the same label can sit on different formulas.
A second common construction divides short-lookback volatility by long-lookback volatility, using ATR or standard deviation on both sides. Readings above 1 mean the market is running hotter than its baseline (expansion) and readings below 1 mean it is cooling (contraction). Both versions share one idea: raw volatility only means something relative to that market's own norm.
How traders use it
- As an event-day flag: a high ratio marks wide-range bars that often coincide with news, breakouts, or capitulation, and such bars are commonly required as evidence that a move has real participation behind it.
- As a regime switch: the short-over-long version crossing above or below 1 is used to toggle between strategy modes, a simple cousin of fuller volatility regime classification.
- As a normalizer: because it is a ratio, the measure is comparable across symbols, which makes it useful in screens for markets leaving compression.
Related concepts · Volatility estimators
Concept family
Volatility
56 concepts mapped · 43 in the Library
Volatility Ratio FAQ
What does a high volatility ratio mean?
That the latest bar or period was unusually large relative to its own recent baseline: an event day. Such days often accompany breakouts, news shocks, or exhaustion, but the ratio says nothing about direction, and follow-through is not guaranteed. Most traders read it alongside where the bar closed within its range and the surrounding structure.
Is there a standard formula for the volatility ratio?
No. Schwager's version divides today's true range by the true range of a trailing window, which platforms compute in slightly different ways, while other tools divide short-term volatility by long-term volatility. The scales and natural thresholds differ between versions, so check the documentation of the implementation you are using before comparing readings.
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