Volatility Quality Index for Filtered Trend Direction Signals

Summary

The Volatility Quality Index is described as a trend-oriented indicator that marks upward and downward direction with green and red signals. Its calculation uses smoothed open, high, low, and close values, compares the current close with a lagged smoothed close, and combines normalized price movement measures into a volatility-sensitive value. Four inputs are adjustable: calculation period, averaging method, smoothing period, and filter size.

The filter suppresses small changes by retaining the prior index value when the absolute new value is below the chosen threshold; otherwise, the new value is used. A positive index is interpreted as an uptrend, while nonpositive values indicate a downtrend. The document supplies a calculation description but no test results, asset-specific settings, or evidence that its direction signals predict returns. The method may help classify movement, but its lag and sensitivity depend on the inputs and require independent evaluation.

Key ideas

• The index classifies direction as up when its value is positive and down otherwise.
• Its calculation combines smoothed price movement with a volatility-sensitive normalization.
• A filter holds the previous value when the new value is too small in absolute terms.
• Period, averaging method, smoothing, and filter size are adjustable.
• The document provides no performance evidence or recommended parameter settings.

Tags

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