Identifying low volatility

If you wanted to identify areas of very low volatility how would you do it?

I’m not asking which indicator you would use. I’m asking how would you identify it quantitatively for a system.

volatility is usually measured by ATR indicator. It depends on what exactly you want to identify – days when volatility is smaller or parts of day?

 

You can for example compare short term ATR with long term ATR.

 

ATR generally tells you what is the average range of candles. If the short term ATR is bigger than long term ATR it means that current volatility is higher than the average.

 

You can use for exampel 1-10 period for shorter ATR and 5-100 for longer ATR.

 

 

Another way to look at volatility is through Volume. When the volume is small usually also volatility is small.

Volume in the forex market for me personally is far too unreliable and MT4 does not actually represent real volume. Maybe if I were trading Futures I would use it, not in Spot FX.

Volatility tends to run in cycles, especially intraday london-NYC. My focus is on Daily bars for my particular system but that is besides the point. The important point is that volatility is a cycle and goes from high to low, low to high. Its important to distinguish these areas. Easily done with the eye, and done by other great traders/programmers mathematically but I am curious to what techniques can we approach this problem using our software, (SQ or Wizard, either one).

Example-

The Two indicators shown here are BBwidthRatio and ATR. It doesnt matter which we select. The solution to this problem will be the same for both.

I’ll be updating this thread.

An Idea

If trading hourly or smaller bars, this is easy to identify using time. Generally the market is low vol 0:00-8:00 but my focus is strictly on Daily therefore my focus is on the indicator, not time.