Volatility Ratio for Range Detection and Trend Reversal Signals

Summary

The Volatility Ratio indicator aims to identify trading ranges and possible points where a trend may return or reverse. It divides each bar’s true range—using the high-low span and gaps from the previous close—by a price range calculated over a configurable lookback period. The only input is the period used in those calculations.

The document says the indicator operates from 0.01 to 1.0 and treats readings above 0.5 as indicating a probability of reversal in the current trend. It provides the calculation definitions but no chart examples, backtest, or evidence of predictive performance. The threshold should therefore be understood as the indicator’s stated interpretation, not a validated probability estimate; the document also does not explain how to turn a reading into an entry, exit, or risk rule.

Key ideas

• The indicator divides current true range by a price range measured across a configurable period.
• True range accounts for the bar’s high-low span and gaps relative to the previous close.
• The document associates readings above 0.5 with possible reversal of the current trend.
• No empirical validation or trading rules are supplied.

Tags

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