# EWMA Volatility

The definitive clean build of EWMA volatility: the RiskMetrics recursion on squared log returns with a 0.94 decay factor, annualized by default at 252 bars per year and drawn with a gradient fill. An equal-weight comparison line, percentile thresholds at 80 and 20 and a dashboard with a half-life readout separate building turbulence from decay.

- Indicator in the LuxAlgo Library, by LuxAlgo, published Jun 16, 2026.
- Access: free.
- Concepts: [EWMA Volatility](https://www.luxalgo.com/library/concept/ewma-volatility/) (primary)
- Open on Vela: https://vela.luxalgo.com/chart?pineScriptCodeId=p2n1v9qla6vtchws2pxwbd07
- Page: https://www.luxalgo.com/library/indicator/ewma-volatility/

**EWMA Volatility** is the definitive clean build of [EWMA volatility](https://www.luxalgo.com/library/concept/ewma-volatility/) estimation: each bar the variance estimate keeps a lambda share of yesterday's estimate and takes the rest from yesterday's squared log return, so a shock enters immediately and decays geometrically instead of dropping out of a window. The reading is annualized by default, filled with a gradient anchored at zero, and paired with a slower equal-weight benchmark on the same returns.

## How to Trade the EWMA Volatility?

- **EWMA above the Equal-Weight line**: turbulence is recent and building; the crossover fires the Turbulence Building alert.
- **EWMA back below**: the shock is decaying. The market is settling.
- **Percentile rank above 80**: an expansion regime by the instrument's own history.
- **Rank below 20**: compression, a quiet stretch that often precedes range expansion.

The estimate sizes movement and carries no direction, like everything in the [volatility family](https://www.luxalgo.com/library/family/volatility/); use it for expectations and risk, not bias.

## EWMA Volatility Settings

- **Lambda (Decay Factor)** (default 0.94): the RiskMetrics daily convention. Higher decays slower and smoother; lower chases shocks quickly but runs noisier.
- **Source** (default close): series the close-to-close log returns come from.
- **Annualize** (default on) and **Bars Per Year** (default 252): scales the reading for cross-instrument comparison.
- **Equal-Weight Comparison** (default on) and **Comparison Window** (default 60): the fixed-window benchmark behind the fast-versus-slow read.
- **Percentile Lookback** (default 100) with **High Percentile** (80) and **Low Percentile** (20): rank thresholds driving the expansion and compression alerts.
- **Show Percentile Levels** (default off): plots the thresholds as dotted levels.
- **Show Dashboard** (default on): reading, benchmark, rank and half-life; **Gradient Fill** (default on) covers the fill.

## Frequently Asked Questions

### How does EWMA differ from historical volatility?
[Historical Volatility](https://www.luxalgo.com/library/indicator/historical-volatility/) weights every return in its window equally, so the line jolts when a big return enters and again when it drops out. The EWMA recursion has no window: a shock enters at full weight and fades continuously.

### What does the half-life on the dashboard mean?
How many bars it takes for the weight on old data to halve, implied by lambda. At the 0.94 default that is roughly 11 bars, so the estimate is dominated by the most recent month of daily data.

### Why rank the reading in percentiles?
Raw volatility levels do not compare across instruments. Ranking against the instrument's own lookback turns “high” and “low” into testable statements, and the alerts run on that rank.

## Related indicators

- [Hot Zone Radar](https://www.luxalgo.com/library/indicator/hot-zone-radar/) (Volatility Percentile/rank): markdown at https://www.luxalgo.com/library/indicator/hot-zone-radar.md
- [Volatility Signature Plot](https://www.luxalgo.com/library/indicator/volatility-signature-plot/) (Volatility): markdown at https://www.luxalgo.com/library/indicator/volatility-signature-plot.md
- [The Range Indicator](https://www.luxalgo.com/library/indicator/the-range-indicator/) (Volatility): markdown at https://www.luxalgo.com/library/indicator/the-range-indicator.md
- [Jump Detection](https://www.luxalgo.com/library/indicator/jump-detection/) (Volatility): markdown at https://www.luxalgo.com/library/indicator/jump-detection.md
- [Volatility of Volatility](https://www.luxalgo.com/library/indicator/volatility-of-volatility/) (Volatility): markdown at https://www.luxalgo.com/library/indicator/volatility-of-volatility.md
- [Garman-Klass–Yang-Zhang Hybrid](https://www.luxalgo.com/library/indicator/garman-klass-yang-zhang-hybrid/) (Volatility): markdown at https://www.luxalgo.com/library/indicator/garman-klass-yang-zhang-hybrid.md
- [GARCH-family Clustering](https://www.luxalgo.com/library/indicator/garch-family-clustering/) (Volatility): markdown at https://www.luxalgo.com/library/indicator/garch-family-clustering.md
- [Kase Studies](https://www.luxalgo.com/library/indicator/kase-studies/) (Volatility): markdown at https://www.luxalgo.com/library/indicator/kase-studies.md

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Source: https://www.luxalgo.com/library/indicator/ewma-volatility/ (LuxAlgo Library). Free to use with attribution: https://www.luxalgo.com/library/license/