Volatility Stop Levels and Breakout Channels
Summary
This note describes a volatility stop indicator based on the difference between moving averages of highs and lows. Its two inputs are the lookback period and a multiplier. The stated calculation scales the high-low average by the multiplier and divides by the closing price. A positive multiplier plots the line below price, while a negative multiplier places it above price.
The indicator can be paired with its oscillator or used twice to form a channel with separate upper and lower lines. The example uses opposite multipliers and suggests trading when price breaks the resulting channel. The document gives no backtest, performance evidence, or detailed rules for entries, exits, and position sizing. It also does not explain how the formula should be interpreted across price levels, so the indicator settings and any trading application would need independent evaluation.
Key ideas
- The indicator derives a volatility measure from the difference between moving averages of highs and lows.
- Its period and multiplier control the calculation and the line’s placement relative to price.
- A negative multiplier can place the stop line above price.
- Two instances with different multipliers can define a channel whose breaks may serve as trading signals.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.