Relative Volatility Measure Using Short- and Long-Term ATRs

Summary

The Relative Volatility Measure (RVM) is an oscillator that places recent volatility on a 0–100 scale, making volatility easier to compare across changing market conditions. It combines the average of three short-period Average True Range (ATR) readings with the average of three longer-period ATR readings, then locates that combined value between its recent high and low over a configurable lookback window.

The article interprets low readings as periods of unusually quiet trading that may precede a breakout, and high readings as volatility extremes that can accompany a move nearing exhaustion. These are heuristic interpretations, not demonstrated trading signals: the document provides no backtest, market examples, or evidence that squeezes lead to profitable breakouts. The indicator describes volatility rather than price direction, so elevated readings do not by themselves imply a reversal. Its sensitivity also depends on the lookback setting, and the source presents the indicator for a particular charting platform.

Key ideas

• RVM normalizes a combined volatility estimate to a scale from 0 to 100.
• It blends three short-horizon ATR readings with three long-horizon readings.
• The lookback window determines the recent volatility range used for normalization.
• Low values mark relative consolidation, while high values indicate elevated volatility.
• The article offers interpretations but no empirical test of predictive or trading performance.

Tags

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