Volatility RSI

The Volatility RSI indicator combines the Average True Range (ATR) with Bollinger Bands %B to identify consolidation periods and potential breakout signals. It aims to bridge the gap between volatility measurement and momentum analysis, helping traders spot high-probability price movements.

Usage

The indicator is primarily used to detect shifts in market volatility and identify potential trend reversals or continuations.

• Consolidation Detection: When the indicator remains within the mid-range or displays low-amplitude movement, it signifies a period of market consolidation.
• Buy/Sell Signals: By scaling and smoothing the values to match an RSI-like framework (0-100), the script produces crossovers that can be interpreted as momentum signals.
• Trend Confirmation: Users can look for the "Avg BB%B" line (when using the easy mode) to change color, indicating bullish (green) or bearish (red) bias based on the relationship between price momentum and ATR-based volatility.

Details

The script functions by first calculating the Average True Range (ATR) to measure market volatility. It then applies the Bollinger Bands %B formula to the ATR values rather than price itself. This specific implementation reveals where the current ATR stands relative to its historical range defined by standard deviations. By overlaying this with a normalized version of price-based %B, the indicator effectively creates a "Volatility RSI" that filters out market noise and provides a cleaner view of price action intensity.

Settings

Main Settings

• Plot Standard BB%B?: Toggles the visibility of the standard Bollinger Bands %B calculation.
• Smooth On?: Enables Exponential Moving Average (EMA) smoothing for the indicator outputs to reduce noise.
• Smooth BB%b with xx EMA: Determines the period of the EMA used for smoothing (default is 9).
• BB%B Period: The lookback period used for the Bollinger Bands calculations.
• BB%B Multiplier: The standard deviation multiplier for the Bollinger Bands width.
• ATR Period: The lookback period used for calculating the Average True Range.

Easy Mode

• What is All This? I want it easy!: When enabled, the script overrides manual settings with simplified logic based on your chart period.
• And My Chart Period in minutes is: Used in "Easy Mode" to automatically calibrate the periods for the BB and ATR calculations.

FAQ

How do I interpret the 70 and 30 levels?

Similar to a traditional RSI, levels above 70 and below 30 indicate extreme volatility relative to the selected lookback period, often marking the boundaries of sustainable price moves.

What is the difference between the blue line and the colored line?

The blue line typically represents the ATR-based volatility component, while the colored line (in easy mode) represents the smoothed average used to generate bullish or bearish trend signals.

How can I access Volatility RSI?

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