5 min read
The historical volatility indicator is a statistical measure of the volatility of a certain asset or security over a period of time. It measures the deviation of the asset's price from its average value over a defined period. This indicator does not show the direction in which the price is heading, but it was created to measure the deviation of the current price from the historical average.
How to use it in trading?
This indicator can be used conveniently to measure the volatility of the asset. When the historical volatility indicator rises or is above average, it means that the price is rising and falling more frequently and faster than normal. This can be a sign of uncertainty in the asset and a sign of a possible trend change. In times of strong historical volatility indicator values, the trader may want to monitor the asset more closely.
When the historical volatility indicator is low or falling, it can be a sign that the asset's price is returning to normal and that uncertainty is over.
Prices fluctuate more and the historical volatility indicator increases
By using this indicator in trading, it may be possible to determine whether the volatility of the asset is high or low and adjust your trading strategy accordingly. The higher the volatility of the asset, the riskier it is. And a volatile market can demand higher stop-loss and take-profit levels and a higher margin.
This indicator can also be used in trend markets: it measures the deviation of the price from the average. If the indicator shows low volatility for a trend market, it means that the price is not fluctuating, but rather moving steadily and gradually over time.
Strong uptrend with low historical volatility
What to combine it with?
Volatility indicators can be combined with trend lines and oscillators. Historical volatility can be used with the QStick – a relatively easy to use trend indicator that is displayed on a horizontal line below the chart.
The volatility indicator can help determine the risk involved, as well as stop loss levels, while the QStick can help determine entry points and market direction. It is important to understand that no combination of indicators will provide a guarantee of 100% success. Each indicator can translate erroneous signals from time to time and traders must learn to tell them apart.
How to set it up?
To configure the historical volatility indicator, find it in the "Volatility" tab of the "Indicators" menu.
Historical volatility indicator on IQ Option
While configuring the indicator, you can save the default settings and use it immediately. Experienced traders can change the default settings and adjust the indicator to suit their needs, provided they understand how the values are calculated.
Now that you have learned how to use this indicator, you are invited to go to the platform and give it a try!
NOTE: This article is not investment advice. Any reference to historical price movements or levels is informative and based on external analysis and we do not guarantee that such movements or levels may recur in the future.
In accordance with the requirements of the European Securities and Markets Authority (ESMA), binary and digital options trading is only available to clients classified as professional clients.
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Source: IQOption blog (blog.iqoption.com) 2020-07-21 10:10:11
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