Volatility Ratio Indicator

Volatility Ratio Indicator

Best Volatility ratio forex indicator for MT4. ATR-based volatility indicator for technical analysis suitable for multiple types of trading.

Most forex technical indicators work best in the presence of a minimum to medium level market volatility. Many forex indicators would produce many false signals in the absence of at least medium-level volatility. As a result, many forex traders include volatility-based indicators in their technical analysis to identify the presence or absence of volatility. The Volatility Ratio Indicator for MT4 detects the presence or absence of volatility and indicates a color change. Volatility-based indicators form the basis for many types of technical trading strategies.

Volatility Ratio Indicator Analysis

The above GBPJPY M30 chart shows the volatility ratio indicator in action. The color of the indicator changes upon the presence or absence of volatility. Forex traders can use the volatility ratio indicator to trade breakouts. The breakouts are typically associated with increased volatility. However, In a ranging market, traders wait for volatility to confirm the breakout. A breakout during low volatility may not confirm the direction and is associated with an increased risk of a false breakout.

Traders can combine the Volatility ratio indicator with many leading indicators for best results to trade during trending markets. Once forex traders identify the trend direction, they can look for volatility to continue trading in the trend’s direction. The waning of volatility can signal a best profit booking point or an exit. An exhaustive list of MT4 indicators measures volatility and indicates them as oscillators, bands, and meters.

MT4 displays the volatility ratio indicator in a separate window. The value above 1 indicates volatility, and below 1 indicates the absence of volatility. The indicator line turns Medium Sea green in color in volatility. The Orange-red color indicates the lack of forex volatility.

To add clarity on the indicator value 1 that indicates volatility, traders can add a level at value 1, as shown in the above indicator MT4 setting. Though the color change can be visible, the addition of a line at level 1 adds more clarity and ease of visually identifying the value.

Volatility and Volatility Ratio Indicator
Volatility is the measure of the changes in the value of the currency pair. The MT4 indicators measure forex market volatility as the value of the price deviates from the average prices. Traditional technical indicators use standard deviation or ATR to measure the volatility using historical prices.

Volatility is typically related to economic events during high-impact news releases. Volatility can be generally classified into historical volatility and implied volatility. Historical volatility helps the forex trader study the past volatility levels of different currency pairs and their market implications. In contrast, the implied volatility is the measure of expected future volatility.

Conclusion
The volatility ratio indicator does not provide trading signals as its own. So, it provides merely an indication of the presence or absence of the market volatility. As a result, it does not give trend direction, and traders should not identify trading direction. Forex traders should use different indicators to determine trade direction and then use the volatility ratio MT4 indicator to add the volatility factor in their technical analysis for best results.