Standard Deviation

Type

Volatility Indicator dispersion between close price and average

How does it work?

The Standard Deviation is a statistical measurement of volatility. It measures how widely values (closing prices for example) are dispersed from the average.

Dispersion is the difference between the actual value (closing price) and the average value (average closing price).

The larger the difference between the closing prices and the average price, the higher the standard deviation will be and the higher the volatility.

The closer the closing prices are to the average price, the lower the standard deviation and the lower the volatility.

The Standard Deviation is typically used as a component of other indicators, rather than as a stand-alone indicator. For example, Bollinger Bands are calculated by adding a security's Standard Deviation to a moving average. However, Sharechart also plots it as a stand-alone indicator.

High Standard Deviation values occur when the data item being analysed (e.g., prices or an indicator) is changing dramatically. Similarly, low Standard Deviation values occur when prices are stable.

Trading Signals

Many analysts feel that major tops are accompanied with high volatility as investors struggle with both euphoria and fear. Major bottoms are expected to be calmer.

Settings

Sharechart Default:  14 period

Example

BHP Ltd experienced very low standard deviation readings at major bottoms in Oct/Nov 2002 and then again in Jun/Jul 2003 at the same price level. The standard deviation is now moving much higher possibly leading to a major top in future.

The setting for the above Standard Deviation was 13. To change the setting for this indicator, please go to Settings>Indicators>Standard Deviation.