Volatility Indicator - MPM

2024年6月10日

Volatilty Indicator:

2024年7月12日

版本注释

The indicator is inspired by the “Realized Volatility” indicators made by AxelAdlerJr, and uses somewhat the same concept. But this indicator is calculated differently and is more adaptive to the market environment. This means that a low-volatility signal can trigger even in high-volatility environments, if the current volatility is comparatively lower than the previous realized volatility. The indicator allows for the user to calibrate the inputs to their liking, which makes it usable over different timeframes and tokens (other than BTC).

There is generally more utility in a low-vol signal compared to a high-vol signal. A low-vol signal usually is followed by high volatility, but a high-vol signal sometimes highlights a mean-reverting market state, although not always correct.

How to use:
The indicator has 5 different states: Very low volatility, low volatility, normal volatility, high volatility and very high volatility.
A very high and/or low volatility state is triggered when the z-score is beyond 2x the user defined z-score threshold. While a high and low volatility state is triggered when the z-score is beyond 1x the user defined z-score threshold. Normal volatility is defined as everything in between the user defined z-score thresholds.

The blue area represents a low volatility area, while the red area represents a high volatility area. Additionally the strength of the signal is also visualised through the strength of the color, which is determined by the z-score.

Calculation:

The indicator has 3 different calculations of volatility:

1. Open and close (oc) volatility. This simply just calculates the volatility between the open and close. The volatility has also been z-scored, so the datapoints can be compared better.
   
2. High and low (hl) volatility. This simply just calculates the volatility between the high and low. The volatility has also been z-scored, so the datapoints can be compared better.
   
3. The average signal takes the average between the high/low volatility and the open/close volatility.
   

User inputs:
Moving Average Length: Sets the length of the MA regarding the realized volatility.
Midline Length: Sets the length of the midline in relation to the realized volatility (this also controls the length of the standard deviation calculation)
Z from midline Low vol: Determines the threshold in z-score where a low volatility area will be triggered.
Z from midline High vol: Determines the threshold in z-score where a high volatility area will be triggered.