Historical Volatility Scale

The Historical Volatility Scale indicator provides a visual dashboard representing market volatility relative to a user-defined lookback period, allowing traders to gauge whether current price action is expanding or consolidating.

Usage

The tool features a vertical scale with a dynamic "Pin" that indicates the current percentile of historical volatility.

• High Volatility: When the Pin moves upward toward the "fire" icon, it indicates that current volatility is higher than the majority of values within the specified length. High volatility often accompanies trending markets where trend-following strategies may be more effective.
• Low Volatility: When the Pin moves downward toward the "snooze" icon, it signifies that volatility is lower than most historical readings in the lookback period. Low volatility typically suggests market consolidation or ranging price action, where oscillators or leading indicators might outperform lagging trend indicators.

Details

The script calculates volatility by taking the standard deviation of the ratio between the current closing price and the previous closing price over a set length. To make this value more intuitive, a Percent Rank calculation is applied to the raw volatility data. This standardizes the output onto a scale of 0 to 100, representing the percentile rank of the current volatility compared to historical data.

Settings

• Length: Determines the number of bars used to calculate the standard deviation and the percent rank. A higher length results in a smoother, less reactive scale that requires larger price moves to shift the pin, while a shorter length makes the indicator more sensitive to immediate price changes.

FAQ

How do I interpret the visual scale?

The scale is color-graded from green (low volatility) to red (high volatility). The position of the arrow shows where the current market sits relative to its recent history.

Is this a leading or lagging indicator?

The Historical Volatility Scale is a lagging indicator as it relies on historical price data to define the current volatility state. It should be used to identify market regimes rather than to predict specific future price directions.

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.