ATR Volatility Spectrum

The ATR Volatility Spectrum indicator estimates price volatility by calculating the fluctuations of a short-term Average True Range (ATR) relative to a long-term reference ATR, providing a universal measure of market activity across any asset or timeframe.

Usage

The ATR Volatility Spectrum can be used to identify current market states ranging from consolidation to high-intensity trends. The indicator displays a central "cloud" that changes color based on the relationship between the fast and slow ATR.

• Low Volatility (Red Areas): When the fast ATR is lower than the slow ATR, the indicator plots red clouds, suggesting a period of contraction or relative market calm.
• High Volatility (Green Areas): When the fast ATR exceeds the slow ATR, green clouds appear, indicating increasing price movement and potential trending behavior.
• Extreme Conditions: The aqua-colored lines represent volatility thresholds based on standard deviations.
  • If the red cloud extends outside these bands, it signals extremely low volatility (potential calm before a storm).
  • If the green cloud extends outside these bands, it signals extremely high volatility (potential blow-off or climax).

Details

The script operates by calculating a percentage difference between a fast ATR and a slow (reference) ATR. Specifically, it uses the formula: 100 * (Fast ATR - Slow ATR) / Slow ATR. This normalization allows the indicator to be applied to any instrument regardless of its price decimalization or absolute ATR value.

Additionally, the tool features an optional "ATR filter" function. This function attempts to remove "exceptional events" by comparing a 1-period ATR to a 200-period ATR plus three standard deviations. If a spike exceeds this threshold, it is filtered out and replaced with the long-term average to ensure the volatility spectrum remains "gentle" and isn't skewed by singular, anomalous price spikes.

Settings

• ATR fast period: Sets the length for the short-term ATR calculation (default is 14).
• ATR slow period: Sets the length for the long-term reference ATR calculation (default is 233).
• ATR filter: A toggle to enable or disable the filtering of extreme price spikes to produce a smoother volatility reading.

FAQ

How do I interpret the cloud crossing the aqua lines?

When the colored clouds move outside the aqua bands, the market is in a statistical extreme. A red cloud outside the bands suggests an unusually quiet market, while a green cloud outside suggests price movement that is significantly higher than the historical average.

Does this indicator work on crypto and forex?

Yes, because the indicator calculates a percentage-based relationship between two ATRs, it is asset-agnostic and functions effectively on crypto, forex, stocks, and commodities.

How can I access the ATR Volatility Spectrum?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.