Every security market has had some degree of volatility. Assessing this volatility is essential to estimate your investment risk and reward. Binomo, one of the leading trading platforms, allows its users to measure volatility using the Chaikin Volatility oscillator (VT).
What is the Chaikin Volatility oscillator?
Volatility is an important factor when analyzing the behavior of asset prices. During periods of high volatility, price changes are more frequent and faster, while during periods of less volatility, they are slower and less frequent.
These changes affect the indicators’ readings, as the signals may arrive too soon or too late. Therefore, it is essential for traders to take into account the volatility factor in their analysis and forecasting.
The Chaikin Volatility indicator (VT) is an analytical tool used to calculate volatility by examining the gap between an asset’s low and high values over a given period.
How to calculate Chaikin’s volatility?
Use the formula to calculate Chaikin’s volatility.
1) Calculate an exponential moving average of the difference between High and Low for each period:
Chaikin recommends a 10-day moving average.
2) Calculate the percent that this moving average has changed over a further period.
(EMA [H-L] – EMA [H-L 10 days ago]) / EMA [ H-L 10 days ago] * 100
Chaikin recommends 10 days.
How does the Chaikin Volatility oscillator work?
Pay attention to the following trading signals:
- Before a new market peak, there is a sharp increase in volatility.
- If the market has lost impetus, there is a sharp decrease in volatility. Most likely, there will be a reversal.
- When the price rises above the recent high, there is an increase in volatility.
- If the market fluctuates in a narrow band, look for low volatility.
- Peak volatility occurs when the market retreats from a new high and enters a trading range.
- Exiting the range is not accompanied by a high rise in volatility.
How to use the Chaikin Volatility oscillator on Binomo?
The Chaikin Volatility oscillator can be used to analyze market volatility. In theory, the difference between an asset’s low and high prices during a specific period can be used to calculate volatility. The Chaikin Volatility oscillator gives you live values that can be used to assess the volatility.
To use the Chaikin Volatility oscillator, we will need to follow two steps below:
- Add the Chaikin Volatility indicator to the chart.
- Read the values to gain insights.
These two topics are discussed in detail down below.
How to add a volatility indicator to a Binomo chart?
On Binomo, you cannot set the Chaikin volatility indicator. But you can measure volatility with the ATR (Average True Range) indicator. To see the market volatility on the Binomo chart, you need to select an indicator from the available ones. Binomo proposes determining volatility using ATR.
To configure it, follow these steps:
- Enter to your Binomo account.
- Select the asset you will trade. For example, Gold or EUR/USD.
- Click on the “Trading tools” icon and then the “Indicators”.
- Select the ATR indicator.
- Set the appropriate settings. You can leave the default settings.
Using this method, you will quickly set up a volatility indicator on the Binomo chart.
Note! The Chaikin Volatility indicator measures the trading range between high and low for each period. This does not take trading gaps into account as the Average True Range indicator does.
How to read volatility readings?
We learned above how to calculate volatility using the formula. It is now essential to understand how to read the readings correctly.
Low readings on the indicator indicate that the intraday high-to-low price range is mostly stable. High readings on the indicator indicate that the intraday high-to-low price range is relatively large.
When the volatility increases quickly, and the price forms peaks on the price chart, it is a sign that traders are becoming anxious.
A developing bull market is indicated when market peaks are long-term, accompanied by declining volatility.
The Chaikin Volatility indicator measures market volatility. Chaikin recommends using a 10-day moving average in calculations. Although there is no Chaikin volatility indicator on Binomo, you can explore another equally important Average True Range (ATR) indicator. Open a Binomo demo account to practice for free in a secure environment before real trading.