Marc Chaikin's Volatility indicator compares the spread between a security's high and low prices, quantifying volatility as a widening of the range between the high and the low price.
How this indicator works
- High values indicate that intraday prices have a wide high-to-low range. Low values indicate that intraday prices have relatively constant high-to-low range.
- Market tops that are accompanied by increased volatility over short periods of time indicate nervous and indecisive traders. Market tops with decreasing volatility over long timeframes indicate maturing bull markets.
- Market bottoms that are accompanied by decreased volatility over long periods of time indicate bored and disinterested traders. Market bottoms with increasing volatility over relatively short time periods indicate panic sell-offs.
Chaikin's Volatility is calculated by first calculating an exponential moving average of the difference between the daily high and low prices. Chaikin recommends a 10-day moving average.
Next, calculate the percent that this moving average has changed over a specified time period. Chaikin again recommends 10 days.
High Low Average = EMA of (High – Low)
Volatility = [(High Low Average - High Low Average n Periods ago) / High Low Average n Periods ago] * 100