L&S Volatility Index Refurbished

The L&S Volatility Index Refurbished indicator is a volatility measurement tool that calculates price distance from a moving average relative to historical volatility to identify overextended market conditions. It provides traders with a way to spot mean reversion opportunities during extreme price stretches or confirm trend stability when prices remain within acceptable regions.

Usage

The Usage section focuses on identifying non-standard price action through the oscillator's position relative to its zones.

• Mean Reversion: When the index exceeds the threshold of 30 (or moves outside Dynamic Zones), the price is considered "stretched." Values approaching 100 indicate extreme exhaustion, suggesting a potential return to the mean.
• Trend Following: As long as the indicator remains in a lower, stable region, it suggests that price action is within normal volatility parameters for the current trend.
• Directional Context: While the index measures absolute volatility, the coloring system helps distinguish whether the stretch is occurring to the upside (bullish stretch) or downside (bearish stretch) relative to the reference moving average.

Details

The calculation is performed in three primary steps: first, determining the percentage distance of the price from a chosen moving average; second, calculating historical volatility; and finally, dividing the distance by that volatility.

This "Refurbished" version introduces several technical enhancements over the original concept:

• Dual Volatility Strategies: Users can choose between "Accumulated ATR" to capture implied volatility and high-impact events, or "Returns" (standard deviation) for a traditional statistical approach.
• Dynamic Zones: Instead of relying solely on fixed levels, dynamic zones adapt to recent historical oscillator values, providing self-adjusting overbought/oversold thresholds.
• Signal Line: An integrated moving average of the oscillator helps filter noise and identify shifts in volatility momentum.

Settings

Timeframe & Price

• Use a different timeframe?: Allows the calculation to be based on a higher timeframe than the current chart.
• Allow Repainting?: Determines if the indicator updates in real-time on the current bar or only on closed bars.
• Source High/Low/Close: Customizes the price inputs used for the volatility and distance calculations.

Moving Average & Volatility

• Moving Average Type: Select from over 15 different MA types (SMA, EMA, HMA, JURIK, etc.) as the baseline for distance.
• Historical Volatility Strategy: Choose between "Returns" or "Accumulated ATR" calculation methods.
• Sample Length: The lookback period used to calculate the historical volatility baseline.

Thresholds & Zones

• Zones: Toggle between Fixed thresholds, Dynamic Zones, or both.
• Top/Bottom Fixed Threshold: Sets the manual horizontal levels (default 30 and 3).
• Dynamic Zone Sample: The lookback period for calculating the adaptive percentile-based zones.

Visuals & Alerts

• Normalize?: Rescales the indicator values between 0 and 100 based on a lookback window.
• Colorize bars: Changes candle colors based on the relationship between the oscillator and its signal line.

FAQ

How do I use the L&S Volatility Index for mean reversion?

Look for the oscillator to break above the 30 level or the upper Dynamic Zone. This indicates the price is statistically stretched relative to its average, often preceding a correction or consolidation.

What is the difference between the Returns and Accumulated ATR strategies?

The "Returns" method uses standard deviation, which is traditional for historical volatility. "Accumulated ATR" captures broader price movements and is often better at reflecting the impact of unexpected market crashes.

How can I access this indicator?

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