Schwager Volatility Ratio: Comparing True Range with Average True Range

Summary

The document introduces the Schwager volatility ratio as a technical measure for comparing a security’s current price range with its recent volatility. It defines today’s true range using the day’s high and low together with the previous close, then relates that range to average true range over a prior period. The indicator is presented as a way to identify changes in volatility and possible price patterns or breakouts. The note places it alongside other volatility tools, including standard deviation, Bollinger Bands, and historical volatility.

The article provides the ratio’s conceptual formula and a platform-specific code example for calculating true range and averaging it. It offers no empirical test, trading rules, or evidence that the measure improves returns. Calculation conventions can vary, and the excerpt’s sample implementation returns an averaged true-range series rather than clearly dividing current true range by average true range as the stated ratio requires. The indicator therefore needs careful implementation and independent validation before use in a strategy.

Key ideas

• The stated ratio compares today’s true range with average true range over a past period.
• True range accounts for the current high and low as well as the previous close.
• The measure is intended to help track volatility changes and identify possible breakout patterns.
• The document notes that volatility-ratio calculations can vary across implementations.
• It provides no tested trading rules or performance evidence, and the code example may not implement the stated ratio directly.

Tags

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