# Volatility Cones

Volatility Cones is an indicator on [Vela](https://vela.luxalgo.com/chart), our next-generation charting platform, written in Pine Script®.

Draws volatility cones from rolling realized volatility at five horizons, 20 to 120 bars by default: min, percentile bands, median and max from a 504-observation sample, with each horizon's current reading marked inside the cone. Manually entered implied volatilities can be overlaid per horizon, a dashboard reports ranks and positions, and four alerts flag rich, depressed and record readings.

- Indicator in the LuxAlgo Library, by LuxAlgo, published Apr 27, 2026.
- Access: free.
- Concepts: [Volatility Cones](https://www.luxalgo.com/library/concept/volatility-cones/) (primary)
- Open on Vela: https://vela.luxalgo.com/chart?pineScriptCodeId=bsm2fgvsetasofrkhvpxh44s
- Page: https://www.luxalgo.com/library/indicator/volatility-cones/

**Volatility Cones** places the current volatility reading in the context of what the market has done over comparable windows. Rolling realized volatility at five horizons is summarized into minimum, percentile bands, median and maximum, drawn as the classic [volatility cones](https://www.luxalgo.com/library/concept/volatility-cones/) shape beside the last bar with each horizon's current reading marked inside. A dashboard adds sample size, cone median, percentile rank and a plain-words position per horizon.

## How to Trade the Volatility Cones?

- **Rich for the horizon**: above the upper percentile, realized volatility is rich by that horizon's own history; the cross is alerted.
- **Depressed for the horizon**: below the lower percentile flags compression, with its own alert; crossing the recorded maximum or minimum adds two more.
- **The profile across horizons**: the connected readings show whether stress sits in short windows or across every horizon.
- **Options overlay**: manually entered implied volatilities plot as diamonds; near the cone top premium is historically expensive, near the floor cheap.

## Volatility Cones Settings

- **Horizon 1**–**Horizon 5** (defaults 20, 40, 60, 90, 120): one cone column each.
- **Sample Length** (default 504): observations kept per horizon, about two years of daily bars.
- **Annualization Factor** (default 252): periods per year; adjust off daily charts.
- **Subtract Mean Return** (default off): variance-style estimation instead of the classic zero-mean construction.
- **Lower Percentile** (default 25) and **Upper Percentile** (default 75): the drawn bands.
- **Show Current Realized Volatility** (on), **Connect Current Readings** (on), **Show Implied Volatility Entries** (off) with five **IV @ Horizon** fields (default 0).
- Display: **Cone Width (bars)** (default 120), **Rightward Offset (bars)** (default 0), **Show Dashboard** (on, Top Right, Small).

## Frequently Asked Questions

### How do I use the implied volatility inputs?

Type the annualized [implied volatility](https://www.luxalgo.com/library/indicator/implied-volatility/) of options maturing near each horizon into its field (entries are manual, there is no options feed) and diamonds appear inside the cone for the classic premium check. You can also copy the source code from this page and run it anywhere Pine Script® runs.

### Why treat the extreme percentiles with care?

Rolling windows overlap heavily, so independent observations are far fewer than the sample count. Quartiles and the median are reasonably stable; the recorded minimum and maximum are artifacts of particular episodes.

### Does it work on intraday charts?

Yes, with a caveat: set the Annualization Factor to bars per session times the yearly session count, and remember session effects and overnight gaps shape intraday volatility in ways a daily cone never sees.

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