Volatility Cycle Indicator

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The Volatility Cycle Indicator is a non-directional trading tool designed to measure market volatility and cycles based on the relationship between standard deviation and Average True Range (ATR). In the Chart GBPAUD 1H time frame you can clearly see when volatility is low, market is ranging and when volatility is high market is expanding.


This innovative approach normalizes the standard deviation of closing prices by ATR, providing a dynamic perspective on volatility. By analyzing the interaction between Bollinger Bands and Keltner Channels, it also detects "squeeze" conditions, highlighting periods of reduced volatility, often preceding explosive price movements.


The indicator further features visual aids, including colored zones, plotted volatility cycles, and highlighted horizontal levels to interpret market conditions effectively. Alerts for key events, such as volatility crossing significant thresholds or entering a squeeze, make it an ideal tool for proactive trading.

Key Features:

Volatility Measurement:
Tracks the Volatility Cycle, normalized using standard deviation and ATR.
Helps identify periods of high and low volatility in the market.

Volatility Zones:

Colored zones represent varying levels of market volatility:

• Blue Zone: Low volatility (0.5–0.75).
  
• Orange Zone: Transition phase (0.75–1.0).
  
• Green Zone: Moderate volatility (1.0–1.5).
  
• Fuchsia Zone: High volatility (1.5–2.0).
  
• Red Zone: Extreme volatility (>2.0).
  

Squeeze Detection:

Identifies when Bollinger Bands contract within Keltner Channels, signaling a volatility squeeze.
Alerts are triggered for potential breakout opportunities.
Visual Enhancements:

Dynamic coloring of the Volatility Cycle for clarity on its momentum and direction.
Plots multiple horizontal levels for actionable insights into market conditions.
Alerts:

Sends alerts when the Volatility Cycle crosses significant levels (e.g., 0.75) or when a squeeze condition is detected.

Non-Directional Nature:

The indicator does not predict the market's direction but rather highlights periods of potential movement, making it suitable for both trend-following and mean-reversion strategies.

How to Trade with This Indicator:

Volatility Squeeze Breakout:

When the indicator identifies a squeeze (volatility compression), prepare for a breakout in either direction.
Use additional directional indicators or chart patterns to determine the likely breakout direction.

Crossing Volatility Levels:

Pay attention to when the Volatility Cycle crosses the 0.75 level:
Crossing above 0.75 indicates increasing volatility—ideal for trend-following strategies.
Crossing below 0.75 signals decreasing volatility—consider mean-reversion strategies.

Volatility Zones:

Enter positions as volatility transitions through key zones:

• Low volatility (Blue Zone): Watch for breakout setups.
  

Extreme volatility (Red Zone): Be cautious of overextended moves or reversals.
Alerts for Proactive Trading:

• Configure alerts for squeeze conditions and level crossings to stay updated without constant monitoring.
  

Best Practices:
Pair the Volatility Cycle Indicator with directional indicators such as moving averages, trendlines, or momentum oscillators to improve trade accuracy.

Use on multiple timeframes to align entries with broader market trends.
Combine with risk management techniques, such as ATR-based stop losses, to handle volatility spikes effectively.

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