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We recommend using Moving Averages and Envelopes as a confirmation of Chaikin's indicator signals.
- A peak of indicator's reading appears when market prices rollaway from the new summit and the market turns flat.
- A flat market resembles low volatility. An exit from the side movement (from a flat) is not accompanied by a significant increase of volatility.
- Volatility grows along with the increase in price level over the previous maximum.
- A rise of Chaikin's indicator level continues till a new price peak is reached.
- A rapid decrease of volatility means that the movement is slowing down and that a back-roll is possible.
Chaikin Volatility Indicator
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Calculation:
H-L (i) = HIGH (i) - LOW (i)
H-L (i - 10) = HIGH (i - 10) - LOW (i - 10)
CHV = (EMA (H-L (i), 10) - EMA (H-L (i - 10), 10)) / EMA (H-L (i - 10), 10) * 100
where:
- HIGH (i) - maximum price of current bar;
- LOW (i) - minimum price of current bar;
- HIGH (i - 10) - maximum price of the bar ten positions away from the current one;
- LOW (i - 10) - minimum price of the bar ten positions away from the current one;
- H-L (i) - difference between the maximum and the minimum price in the current bar;
- H-L (i - 10) - difference between the maximum and the minimum price ten bars ago;
- EMA - exponential moving average.
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