L2 Volatility of Williams VixFix Risk Assessment

The L2 Volatility of Williams VixFix Risk Assessment indicator provides a comprehensive sentiment and risk evaluation tool by merging a customized Williams VixFix calculation with a safety-based risk assessment model. It aims to help traders identify potential market bottoms and exhaustion points by normalizing and combining two distinct volatility-based metrics into a single readable oscillator.

Usage

The indicator oscillates between 0 and 100, providing clear visual cues for overbought and oversold conditions:

• Potential Long Entry (< 30): When the merged value falls below 30, it indicates high market fear or extreme safety levels, often corresponding with market bottoms or undervalued conditions.
• Potential Short Entry (> 70): When the merged value rises above 70, it suggests a period of potential exhaustion or high risk, often occurring near market peaks.
• Sideways/Neutral (30 - 70): The middle range represents a neutral or sideways market state where no extreme risk or volatility signals are present.

Traders can look for the "Buy" and "Sell" labels generated by crossovers/crossunders of the merged value and its smoothed historical components to time specific entries.

Details

This tool combines two primary methodologies:

1. Williams VixFix: A synthetic VIX calculation that measures the distance from the highest close over a lookback period to the current low. This version enhances the standard VixFix by incorporating Bollinger Bands and percentile thresholds to identify extreme volatility spikes.
2. Risk Assessment: This component calculates the percentage change of the closing price relative to the highest highs and lowest lows over specific safety and risk lengths. It uses a dual EMA smoothing process to derive a "safety level."

Both indicators are normalized to a 0-100 scale and then merged using an Arnaud Legoux Moving Average (ALMA) to provide a smooth, responsive signal that captures the essence of both market sentiment and structural risk.

Settings

Williams VixFix Settings

• LookBack Period Standard Deviation High: The period used to determine the highest price for the VixFix calculation.
• Bollinger Band Length: The window for calculating the SMA and standard deviation of the VixFix.
• Bollinger Band Standard Deviation Up: The multiplier for the upper Bollinger Band volatility threshold.
• Look Back Period Percentile High: The window used to calculate the historical percentile of the VixFix.
• Percentile Threshold: The threshold (e.g., 0.85 for 85%) used to trigger volatility signals.

Risk Assessment Settings

• Risk Length: The period used to find the lowest low for risk evaluation.
• Safety Length: The period used to find the highest high for safety evaluation.
• EMA Length: The smoothing period applied to the raw risk/safety calculation.

FAQ

How do I interpret the merged value?

The merged value synthesizes volatility and risk. Readings below 30 suggest market fear is high and the asset may be near a bottom, while readings above 70 suggest high risk or exhaustion.

What do the Buy and Sell labels represent?

The labels are generated based on internal crossovers of the normalized indicators, serving as suggested triggers when the combined volatility and risk trend shifts.

How can I access L2 Volatility of Williams VixFix Risk Assessment?

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