Further study over a period that spams multiple market types would help.
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Next I wanted to try it on a basket of currencies as currencies tend to trend more than the ES. Here are the results:. These results definitely look better. Additionally, the Long trades performed slightly better than Short trades, making the edge even greater. Entry Conditions: If we have 2 consecutive bars close outside of one of bands, enter a trade in the direction of the breakout.
Here we see that the results are better than with just a single close outside the bands.
There are fewer trades, as we would expect with tighter entry criteria. Again that could be due to the market type over the period, but additional study is required to determine if there is a correlation.
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I also tested the strategy against the same basket of ETFs. So it appear that for some instruments, this entry strategy certainly would be exploring in detail more. Additional study is needed to determine if there is a correlation between market type and the discrepancy between long and short trades. However, with a good exit strategy, this entry has the potential of offering an edge for your trading.
I see a lot of interesting articles on your blog. Past performance is no guarantee of future results. Skip to Main Content. Search fidelity. Investment Products. Why Fidelity. Home » Research » Learning Center ».
Volume Weighted Average Price (VWAP), with Standard Deviation Bands
Print Email Email. Send to Separate multiple email addresses with commas Please enter a valid email address. Your email address Please enter a valid email address. Message Optional. In such a circumstance, you might assume reversion to the mean to be a likely behaviour and trade accordingly. Of course, different traders may use the same information in different ways, according to their trading styles.
A trend-following trader may look at a high standard deviation value and see it as a possible formation of a new trend, as prices break out of the old range.
The use of standard deviation as a standalone indicator is somewhat limited though, and there are more applications when using it as building block in combination with other tools. For example, standard deviation is used as a key part when constructing the Bollinger Bands , probably the most famous type of volatility channel indicator. With this indicator, a moving average acts as a centre-line and then volatility channels — the Bollinger Bands — are plotted a number of standard deviations above and below.
John Bollinger, who invented the indicator, suggested that when bands narrow, there is a high chance of a subsequent spike in volatility. Trend-following traders also use the bands as a breakout signal. There are plenty of other ways in which you could use standard deviation in combination with other indicators. For example, you could use a trend-confirming tool, such as a moving average, or several moving averages in combination with each other e.
Using Bollinger Bands to Gauge Trends
You could then use the Standard Deviation indicator as a second step, trading on the basis of reversion to the mean — but only when such a trend is in the direction of the larger trend. There are an almost endless number of permutations you can choose to put into practice. Whatever you do decide, you can optimise your choice by expanding the number of trading indicators at your disposal.
MetaTrader Supreme Edition is a custom plugin that makes a larger number of tools available, all within a single, free download. So is the Standard Deviation indicator a tool you should be using?
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Well, the ultimate judgement for this should come down to what is most effective for you in practice. The best indicator of market volatility may differ from trader to trader according to their own experiences and needs. So make sure to try it out with a demo trading account first, and see how it goes for you. All the other volatility indicators in MetaTrader 4 and MetaTrader 5 can be used with an Admiral Markets demo account with real market prices, but without any risk, making it the perfect environment for trying out trading strategies.
If you're looking for something that is easy to use and understand, Standard Deviation is one of the best volatility indicators you'll find in MT4 and MT5. It uses well-established statistical theory to calculate its values and helps you to easily see whether volatility is high or low.
We hope that you enjoyed this discussion of the Standard Deviation indicator. Did you know that Admiral Markets offers an enhanced version of Metatrader that boosts trading capabilities? Now you can trade with MetaTrader 4 and MetaTrader 5 with an advanced version of MetaTrader that offers excellent additional features such as the correlation matrix, which enables you to view and contrast various currency pairs in real-time, or the mini trader widget - which allows you to buy or sell via a small window while you continue with everything else you need to do.
About Admiral Markets Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8, financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today! This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time.
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