Volatility State Index [Interakktive]The Volatility State Index (VSI) classifies market volatility into three behavioral states: Expansion, Decay, and Transition. It answers one question visually: Is volatility supporting price movement, withdrawing, or unstable?
Unlike traditional volatility indicators that show levels or bands, VSI diagnoses the current volatility regime so traders can adapt their approach accordingly.
█ WHAT IT DOES
• Classifies volatility into three states: Expansion (teal), Decay (grey), Transition (amber)
• Measures volatility momentum as a percentage rate-of-change
• Applies stability filtering to detect unstable/choppy conditions
• Uses persistence logic to prevent state flickering
• Exports state data for use in alerts and strategies
█ WHAT IT DOES NOT DO
• NO buy/sell signals
• NO entry/exit recommendations
• NO alerts (v1 is diagnostic only)
• NO performance claims
This is a volatility diagnostic tool, not a trading system.
█ HOW IT WORKS
The VSI processes volatility through a five-stage pipeline:
STAGE 1 — Base Volatility
Calculates ATR as the foundation for volatility measurement.
STAGE 2 — Smoothing
Applies EMA smoothing to reduce noise in the volatility series.
STAGE 3 — Volatility Momentum
Computes the percentage rate-of-change of smoothed volatility:
Volatility Momentum (%) = ((Current ATR - Previous ATR) / Previous ATR) × 100
Positive values indicate expanding volatility; negative values indicate contracting volatility.
STAGE 4 — Stability Filter
Tracks how frequently volatility momentum changes direction. Frequent sign changes indicate unstable, choppy conditions.
Stability Score = 1 - (Average Flip Rate)
Low stability forces the Transition state regardless of momentum level.
STAGE 5 — State Classification
Combines momentum thresholds and stability to determine the final state:
• Expansion: Momentum ≥ +5% (default threshold)
• Decay: Momentum ≤ -5% (default threshold)
• Transition: Between thresholds OR low stability
A persistence filter requires states to hold for multiple bars before confirming, preventing visual noise.
█ INTERPRETATION
EXPANSION (Teal)
Volatility is increasing in a sustained way. Price moves are becoming larger.
What it suggests:
• Breakouts are more likely to follow through
• Stops may need wider placement
• Trend-following approaches tend to work better
• Mean-reversion weakens
DECAY (Grey)
Volatility is decreasing. Price is compressing into tighter ranges.
What it suggests:
• Breakouts are more likely to fail
• Ranges tend to hold
• Trend-following underperforms
• Mean-reversion strengthens
TRANSITION (Amber)
Volatility behavior is unclear or unstable. This is NOT neutral — it is uncertainty.
What it suggests:
• Mixed signals — one bar huge, next bar dead
• Higher whipsaw risk
• Reduced conviction in either direction
• Consider waiting for clarity
The key insight: Amber is a warning, not a middle ground. It appears when volatility cannot decide what it wants to do.
█ VISUAL DESIGN
The indicator uses a state-first histogram design:
• Histogram height shows volatility momentum percentage
• Histogram color shows the classified state
• Zero line provides visual anchor
• Optional momentum line for confirmation
• Optional background tint (default OFF for clean charts)
The visual hierarchy prioritizes instant state recognition. A trader should understand the volatility environment in under one second without reading numbers.
█ INPUTS
Core Settings
• ATR Length: Base volatility measurement period (default: 14)
• Smoothing Length: EMA smoothing applied to ATR (default: 10)
• Momentum Length: Rate-of-change lookback (default: 10)
State Classification
• Expansion Threshold (%): Momentum above this = Expansion (default: 5.0)
• Decay Threshold (%): Momentum below this = Decay (default: -5.0)
• Persistence Bars: Bars required to confirm state change (default: 3)
• Stability Lookback: Window for stability calculation (default: 20)
• Stability Threshold: Below this = forced Transition (default: 0.5)
Visual Settings
• Show State Histogram: Toggle main display (default: ON)
• Show Momentum Line: Thin confirmation line (default: OFF)
• Show Zero Line: Baseline reference (default: ON)
• Show Background Tint: Subtle state coloring (default: OFF)
█ DATA WINDOW EXPORTS
When enabled, the following values are exported:
• ATR (Raw)
• ATR (Smoothed)
• Volatility Momentum (%)
• Stability Score (0-1)
• State (-1/0/1): Decay = -1, Transition = 0, Expansion = 1
• Is Expansion (0/1)
• Is Decay (0/1)
• Is Transition (0/1)
These exports allow VSI to be used as a filter in Pine Script strategies or alert conditions.
█ ORIGINALITY
While ATR and volatility indicators are common, VSI is original because it:
1. Classifies volatility into behavioral states rather than showing raw levels
2. Applies momentum analysis to volatility itself (rate-of-change of ATR)
3. Uses stability filtering to detect genuinely unstable conditions
4. Implements persistence logic to prevent state flickering
5. Provides a state-first visual design optimized for instant recognition
VSI is state-first: it classifies volatility regimes (Expansion/Decay/Transition) rather than plotting volatility level alone, using momentum and stability to reduce false regime reads.
This is not a modified ATR or Bollinger Band — it is a volatility regime classifier.
█ SUITABLE MARKETS
Works on: Stocks, Futures, Forex, Crypto
Timeframes: All timeframes — state classification adapts accordingly
Best on: Instruments with consistent volatility patterns
█ RELATED
• Market Efficiency Ratio — measures price path efficiency
• Effort-Result Divergence — compares volume effort to price result
█ DISCLAIMER
This indicator is for educational purposes only. It does not constitute financial advice. Past performance does not guarantee future results. Always conduct your own analysis before making trading decisions.
State
lib_statemachine_modifiedLibrary "lib_statemachine_modified"
Modified to fix bugs and create getState and priorState methods.
method step(this, before, after, condition)
Namespace types: StateMachine
Parameters:
this (StateMachine)
before (int) : (int): Current state before transition
after (int) : (int): State to transition to
condition (bool) : (bool): Condition to trigger the transition
Returns: (bool): True if the state changed, else False
method step(this, after, condition)
Namespace types: StateMachine
Parameters:
this (StateMachine)
after (int) : (int): State to transition to
condition (bool) : (bool): Condition to trigger the transition
Returns: (bool): True if the state changed, else False
method currentState(this)
Namespace types: StateMachine
Parameters:
this (StateMachine)
method previousState(this)
Namespace types: StateMachine
Parameters:
this (StateMachine)
method changed(this, within_bars)
Namespace types: StateMachine
Parameters:
this (StateMachine)
within_bars (int) : (int): Number of bars to look back for a state change
Returns: (bool): True if a state change occurred within the timeframe, else False
method reset(this, condition, min_occurrences)
Namespace types: StateMachine
Parameters:
this (StateMachine)
condition (bool) : (bool): Condition to trigger the reset
min_occurrences (int) : (int): Minimum number of times the condition must be true to reset
Returns: (bool): True if the state was reset, else False
StateMachine
Fields:
state (series int)
neutral (series int)
enabled (series bool)
reset_counter (series int)
prior_state (series int)
last_change_bar (series int)
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