Measuring Volatility by Counting Price Peaks and Troughs

Summary

The indicator estimates recent volatility by counting local highs and lows over a rolling lookback. A peak is identified when surrounding bars have lower highs, while a trough has higher lows; the BarsBefore and BarsAfter settings determine how many neighboring bars define each pivot. It then compares recent peak and trough counts with a longer-run average and displays separate peak, trough, and combined series centered around a zero reference.

Higher readings indicate more frequent turning points, while lower readings suggest fewer recent pivots. The author suggests that declining counts can accompany a sustained trend, and that an imbalance between peak and trough counts may indicate asymmetric resistance or support. These are interpretive possibilities rather than tested trading rules: the document gives no performance study, and leaves signal interpretation to the user. Results also depend on lookback and pivot definitions, so the measure describes turning-point frequency rather than volatility in price magnitude directly.

Key ideas

• The indicator treats local highs and lows as peaks and troughs, with neighboring-bar settings defining each pivot.
• It compares rolling counts of peaks and troughs with an average baseline to create centered readings.
• Separate series show peak activity, trough activity, and their combined level.
• More frequent pivots are interpreted as higher volatility, while fewer pivots suggest quieter conditions.
• The proposed trend and support-resistance interpretations are hypotheses, not validated trading signals.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.