VolatilitySwitch

Description

The Volatility Switch study is a technical indicator designed by Ron McEwan to estimate current volatility in respect to a large amount of historical data, thus indicating whether the market is trending or in mean reversion mode. It normalizes historical volatility to the 0..1 range.

Volatility Switch is calculated as a standard deviation of the ratio of difference between price and its previous value to the arithmetical mean of these two values. When Volatility Switch rises above the 0.5 level, volatility in the market is increasing, thus the price action can be expected to become choppier with abrupt moves. When the indicator falls below the 0.5 level from recent high readings, volatility decreases, which may be considered a sign of trend formation.

According to Ron McEwan's article, Volatility Switch should be used together with a trend following or range market indicator in order to provide you with valuable signals after the market mode is defined. See the article on the VolSwitch strategy for information about using this study in combination with RSI and Simple Moving Average.

 

Input Parameters

Parameter Description
price The price used in calculations.
length The number of bars used in calculation of standard deviation.

Plots

Plot Description
VolatilitySwitch The Volatility Switch plot.
MidLine The 0.5 level.

Further Reading

1. "The Volatility (Regime) Switch Indicator" by Ron McEwan. Technical Analysis of Stocks & Commodities, February 2013.

Example*

*For illustrative purposes only. Not a recommendation of a specific security or investment strategy.

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