How to Use Swami Volatility

As if I needed to remind anyone, the market has continued its violent sell-off since this past Thursday.  Although not as predictive as some of the past indicators I’ve analyzed, Swami Volatility gives you a clearer picture of price volatility that can be very useful during these chaotic times.

Swami Volatility gives a clear picture of volatility by comparing the current true range of price movement to the average true range over a range of filtering periods from 12 to 48 bars. Higher volatility is indicated in light blue and lower volatility is indicated in darker blue.

Periods of high volatility are shown as lighter shades of blue while periods of low volatility are in darker blue. In the example chart below for Verizon (VZ) below, the increasing volatility shown in early June anticipates the trend reversal. Also, one could argue that the increased volatility shown in mid to late July signed the drastic price downturn we’ve been experiencing.

*You can download the set of Classic Swami indicators here.  These indicators include Swami versions of Aroon, CCI, RSI, and Stochastics.

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