Historical Volatility Percentile + SMA

The Historical Volatility Percentile + SMA indicator measures current market volatility relative to its historical range over a specified period, helping traders identify periods of relative expansion or contraction. By normalizing volatility into a percentile format and comparing it against a signal line, the tool provides a clear view of whether current market activity is unusually high or low compared to the past year.

Usage

The Usage section focuses on identifying volatility regimes and potential entry points based on the relationship between price action and volatility percentiles.

• Trend Confirmation: The indicator uses color coding to signal potential trade setups. A bullish signal occurs when the price is above its Exponential Moving Average (EMA) and the Historical Volatility Percentile (HVP) is above its Simple Moving Average (SMA).
• Reversal Identification: A bearish signal is triggered when the price is below its EMA while the HVP remains above its SMA, suggesting high-volatility downward pressure.
• Volatility Context: An HVP value of 90 indicates that current volatility is higher than 90% of the observations over the lookback period (e.g., 252 days), while a value of 10 suggests a period of relative calm.

Details

The script calculates Historical Volatility (HV) by measuring the standard deviation of logarithmic returns, annualized by the square root of the annual length parameter. This HV value is then ranked against its own history over the "Annual Length" period to create a percentile (0-100).

To filter noise and provide actionable signals, the indicator compares this percentile against an SMA of itself. Additionally, an internal EMA calculation on the price source is used to determine the trend bias, ensuring that volatility spikes are categorized as either bullish or bearish based on market direction.

Settings

• Source: The price data used for all calculations (default is Close).
• Resolution: Allows the indicator to calculate based on a different timeframe than the current chart.
• Allow Repainting?: Determines if the indicator uses data from the current candle in multi-timeframe calculations.
• Allow Bar Color Change?: Enables or disables the changing of candle colors on the chart based on indicator signals.
• Length: The lookback period for the volatility and SMA calculations.
• Annual Length: The historical window used to determine the volatility percentile (typically 252 for a trading year).

FAQ

How do I interpret the HVP value? The HVP represents the percentage of days in the lookback period that had lower volatility than the current day. Higher values indicate expanding volatility, while lower values indicate contracting volatility.

What do the green and red colors signify? Green bars/lines indicate a bullish trend where volatility is rising above its average. Red bars/lines indicate a bearish trend where volatility is rising above its average.

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