Volatility Ratio Indicator
The best forex volatility ratio indicator for MT5. ATR based volatility indicator for technical analysis suitable for different types of trading.
Description
Most forex technical indicators work best with minimal to moderate market volatility. Many forex indicators would give a lot of false signals in the absence of at least an average level of volatility. As a result, many forex traders include volatility-based indicators in their technical analysis to determine the presence or absence of volatility. The Volatility Ratio Indicator for MT5 detects the presence or absence of volatility and indicates a color change. Volatility based indicators form the basis of many types of technical trading strategies.
Volatility Ratio Indicator Analysis
The EURUSD H1 chart above shows the Volatility Ratio indicator in action. The color of the indicator changes with or without volatility. Forex traders can use the volatility ratio indicator to trade breakouts. Breakouts are usually associated with increased volatility. However, in a ranged market, traders are waiting for volatility to confirm a breakout. A low volatility breakout may not confirm direction and is associated with an increased risk of a false breakout.
Traders can combine the Volatility Ratio indicator with many leading indicators to achieve the best results when trading trending markets. Once forex traders determine the direction of the trend, they can look for volatility in order to continue trading in the direction of the trend. Decreasing volatility can signal a major profit-taking point or exit. An exhaustive list of MT5 indicators measures volatility and labels them as oscillators, bands, and meters.
MT5 displays the Volatility Ratio indicator in a separate window. A value above 1 indicates volatility and below 1 indicates no volatility. Depending on the volatility, the Medium Sea indicator line turns green. Orange-red color indicates the absence of forex volatility.
To clarify the indicator’s value of 1, which indicates volatility, traders can add a level with a value of 1, as shown in the MT5 indicator setup above. While the color change may be visible, adding a line at level 1 adds clarity and makes it easier to see the value visually.
Volatility and Volatility Ratio Indicator
Volatility is a measure of the change in the value of a currency pair. MT5 indicators measure the volatility of the forex market as the price value deviates from the average prices. Traditional technical indicators use standard deviation or ATR to measure volatility using historical prices.
Volatility is usually associated with economic events during major news releases. Volatility can usually be divided into historical volatility and implied volatility. Historical volatility helps the forex trader to study the past levels of volatility of various currency pairs and their impact on the market. In contrast, implied volatility is a measure of expected future volatility.
Conclusion
The Volatility Ratio indicator does not provide trading signals as its own. Thus, it simply indicates the presence or absence of market volatility. As a result, it does not provide trend direction and traders do not have to determine the direction of the trade. Forex traders should use various indicators to determine the direction of a trade and then use the MT5 Volatility Factor Indicator to add a volatility factor to their technical analysis for best results.
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