Volatility System by Wilder

The Volatility System by Wilder indicator provides a classic reversal-based trading strategy that utilizes the Average True Range (ATR) to determine Stop and Reverse (SAR) levels.

Usage

The Volatility System is a pure reversal system, meaning it is designed to be in either a long or a short position at all times. The strategy identifies trend shifts when the closing price crosses above or below specific volatility-based boundaries.

• Long Signals: Occur when the price closes above the high SAR point.
• Short Signals: Occur when the price closes below the low SAR point.

The stop strategy is dynamic; the gap between the price and the SAR point widens or narrows based on market volatility (ATR). This indicator is best suited for higher timeframes, such as the 12H, 1D, or 3D charts, where trends are more established. Users can also configure the tool to trade exclusively in one direction (Longs only or Shorts only) to align with a broader market bias.

Details

This system was originally introduced by J. Welles Wilder, Jr. in his 1978 book, "New Concepts in Technical Trading Systems." It is built upon the Average True Range (ATR) to calculate an Average Range Constant (ARC).

The ARC is the product of the ATR over a specific length ($n$) and a multiplier factor.

• High SAR: Calculated by adding the ARC to the lowest close of the last $n$ bars.
• Low SAR: Calculated by subtracting the ARC from the highest close of the last $n$ bars.

A reversal is triggered when the price closes on the opposite side of these trailing levels. Because the SAR levels move based on price extremes and volatility, the strategy adapts to changing market conditions but may experience significant drawdowns during volatile transitions.

Settings

Core Settings

• Longs only: Restricts the strategy to only entering long positions.
• Shorts only: Restricts the strategy to only entering short positions.
• ATR length: The lookback period used to calculate the Average True Range and identify the highest/lowest closes.
• ARC factor: The multiplier applied to the ATR to determine the distance of the SAR levels.

Visuals

• Show all SARs: Displays all Stop and Reverse points on the chart regardless of the current trade direction.
• Hide all SARs: Removes the SAR plots from the chart for a cleaner look.
• Show Entry/Exit triggers: Displays triangle markers on the chart when a reversal condition is met.
• Show Traded Background: Highlights the chart background based on the current position direction (Green for long, Red for short).

Date Range

• From/To Year, Month, Day: Defines the specific time window for the strategy backtest or indicator calculation.

FAQ

How do I use the Volatility System by Wilder?

The system identifies trend reversals. You enter long when the price closes above the high SAR line and enter short when it closes below the low SAR line.

What are the best settings for this indicator?

Wilder originally suggested a length of 7 and a factor between 2.8 and 3.1. However, modern markets often require calibration; cryptos may perform better with lower factors (1.8–2.5), while stocks may require higher factors (3.0–4.0).

How can I access Volatility System by Wilder?

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