Toby Crabel's narrow range with historical volatility

The Toby Crabel's narrow range with historical volatility tool identifies consolidation patterns based on price range contraction and volatility filters to capture potential breakout opportunities. By detecting periods where the current price range is the narrowest over a specified period, the script highlights high-probability setups for impending volatility expansion.

Usage

The tool is primarily used to identify "Narrow Range" (NR) bars that occur within an inside bar structure. When a narrow range bar is detected and the historical volatility filter is met, the script suggests placing stop-orders at the high and low of the previous bar.

• Long Entry: Triggered when price breaks above the high of the setup bar.
• Short Entry: Triggered when price breaks below the low of the setup bar.
• Exit Strategy: The strategy is designed for short-term bursts, typically closing positions on the subsequent bar or using the opposite side of the setup bar as a stop-loss.

Details

The script combines two core concepts:

1. Narrow Range (NR): It calculates the difference between the high and low of each bar and identifies when this range is the lowest within the user-defined NR Period.
2. Historical Volatility (HVol) Filter: It compares short-term historical volatility (LookBack Small) against long-term historical volatility (LookBack Big). A breakout is considered more reliable if it occurs when short-term volatility is significantly lower than the long-term average, suggesting a "coiled spring" effect.

Settings

NR Settings

• NR Period: The number of bars to look back to determine if the current bar has the smallest range.
• Use HVol: Toggle to enable or disable the historical volatility ratio filter.
• HVol Ratio: The threshold for the ratio between small-lookback and big-lookback historical volatility.

Volatility Calculation

• LookBack Big: The period used to calculate the baseline long-term historical volatility.
• LookBack Small: The period used to calculate the current short-term historical volatility.
• Annual: The number of trading days in a year used for volatility annualization.

Backtesting

• Custom Backtesting Dates: Enables the selection of a specific time range for historical performance analysis.
• Start/Stop Dates: Specific year, month, day, and hour inputs to define the backtesting window.

FAQ

How do I use the historical volatility filter effectively?

The historical volatility filter ensures you only take trades when the market is exceptionally quiet relative to its recent history. Setting a lower HVol Ratio (e.g., 0.50) means the short-term volatility must be half of the long-term volatility for a signal to trigger.

Can this be used on intraday timeframes?

Yes, the script automatically adjusts its calculations based on whether it is running on intraday or daily timeframes, though the Annual setting should be adjusted to reflect the number of periods in a trading year for your specific asset.

How can I access Toby Crabel's narrow range with historical volatility?

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