Volatility Oscillator

The Volatility Oscillator indicator provides a visual representation of relative volatility and directional trends, helping traders identify potential price reversals and trend continuations through divergence detection.

Usage

The Volatility Oscillator is primarily used to identify market momentum and potential turning points. By monitoring the relationship between price action and the oscillator's "Spike Line," traders can spot regular and hidden divergences.

• Regular Divergences: Occur when the oscillator makes a higher low while price makes a lower low (Bullish), or a lower high while price makes a higher high (Bearish), signaling a potential trend reversal.
• Hidden Divergences: Occur when the oscillator makes a lower low while price makes a higher low (Bullish), or a higher high while price makes a lower high (Bearish), suggesting trend continuation.
• Price Range Analysis: Users can adjust the Length setting to lower values (e.g., 11 or 13) to better visualize immediate price ranges and short-term volatility spikes.
• Channel Identification: The oscillator can help identify patterns such as parallel channels, where the directional movement of the spikes indicates the likely trajectory of price action.

Details

The script calculates volatility by measuring the "spike value," defined as the difference between the close and open prices. To provide context for these spikes, it calculates an upper and lower deviation band based on the standard deviation of these spikes over a user-defined length.

Pivot points within the oscillator values are compared against price pivots to automatically plot labels for Regular (R) and Hidden (H) divergences. The indicator includes a "Delay diversion plot" toggle to prevent repainting by waiting for the candle to close before confirming a divergence signal.

Settings

• Length: Sets the period used to calculate the standard deviation bands for the volatility spikes.
• Plot Bullish: Toggles the visibility of Regular Bullish divergence labels.
• Plot Hidden Bullish: Toggles the visibility of Hidden Bullish divergence labels.
• Plot Bearish: Toggles the visibility of Regular Bearish divergence labels.
• Plot Hidden Bearish: Toggles the visibility of Hidden Bearish divergence labels.
• Delay diversion plot until candle is closed: When enabled, the indicator waits for the bar to close before plotting signals, ensuring that labels do not repaint during active price movement.

FAQ

How do I interpret the Spike Line?

The Spike Line represents the immediate directional volatility of a candle. When it extends beyond the neutral deviation bands, it indicates a volatility expansion relative to the historical period defined in the settings.

What is the difference between "R" and "H" labels?

"R" stands for Regular divergence, which typically signals a potential reversal in the current trend. "H" stands for Hidden divergence, which often suggests the current trend is likely to continue after a brief consolidation.

How can I access the Volatility Oscillator?

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