If you have any questions or suggestions you are welcome to join our forum discussion about Standard Deviation Indicator. Standard deviation is an indicator that measures the size of an asset’s recent price moves in order to predict how volatile the price may be in the future. It can help you decide whether volatility is likely mean reversion forex factory increase or decrease. A very high standard deviation reading indicates that a huge price change has just occurred, but that a decrease in volatility could soon follow.
A very low standard deviation reading indicates the opposite. This indicator measures the scale of price deviation related to the moving average. This means that if the indicator’s value is large, the market is experiencing high volatility and candlesticks are rather dispersed around. Conversely, if the value is smaller, then market volatility is low and prices are rather close to the moving average. The standard deviation indicator is easy to interpret since it reflects market behavior, which itself consists of shifts between highly active and sluggish market conditions. If standard deviation is too low, i. Conversely, if the value is extremely high, then a decline in activity is likely about to follow.
Use of the Standard Deviation Indicator Using the probability distribution models allows you to create many trading strategies, but the most common use of the standard deviation indicator is to predict price reversals based on the principle of reversion to the mean. Retracement to the average is basically the principle on which oscillators like the Relative Strength Index are constructed. It argues that each deviation from the mean must be followed by a return to the same so that the overall distribution of prices fits the standard distribution. When to use standard deviation Standard deviation is considered as one of the most reliable indicators available to traders, but under certain conditions. In trending markets where volatility is moderate and price oscillation is concentrated around the middle of the range, the standard deviation indicator is one of the best tools you would find.