Volatility Quality Indicator for Trend Direction and Reversal Filtering

Summary

The Volatility Quality indicator uses weighted moving averages of recent open, high, low, and close prices to combine price direction with range-based volatility. Its plotted value is positive in bullish conditions and negative in bearish conditions, with the zero line serving as the directional reference. A threshold filter suppresses small changes, while the calculation carries forward the prior value when its ranges are zero.

The document presents the indicator as a way to avoid frequent opposite signals during an established trend unless volatility supports a reversal. It provides a code implementation and parameter defaults, but no backtest, market sample, or performance evidence. The stated trade-off is lag: smoothing over 15 periods can delay trend recognition. The filter and smoothing settings may affect behavior, and the description does not establish that the indicator reliably avoids range-bound markets or improves trading outcomes.

Key ideas

• The indicator derives directional values from weighted averages of recent OHLC prices and their ranges.
• Values above zero indicate bullish direction, while values below zero indicate bearish direction.
• A change filter suppresses small value movements, and zero ranges cause the previous value to be retained.
• The author says the volatility condition can reduce opposite signals during a trend, but provides no performance tests.
• Smoothing can delay trend signals, with 15 periods given as the default.

Tags

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