Forex glossary
Volatility Indicator
A volatility indicator describes dispersion or range using a specified formula and data window. ATR, standard deviation and band width measure different properties and may use different units. Such measures can inform exposure and order distances, without determining direction or maximum future loss.
Illustrative example
How does it work in practice?
Assume EUR/USD ATR rises from ten to twenty pips with unchanged settings. Smoothed true range has doubled in that data; this implies neither a doubling of price nor a fixed bound on future movement.
A case to work through
Same value, different scale
Hypothetically, instrument A has price=50 and ATR=2; B has price=200 and ATR=2.
- Their ATR values are equal in price units.
- Dividing by price gives 4% and 1%; this is an auxiliary normalization rather than ATR's own formula.
What follows? State the units and conversion used.
Example boundary: The relative reading bounds neither future movement nor the instrument's full risk.
A useful distinction
Volatility Indicator / Trend Strength
A volatility indicator measures range or dispersion; trend strength assesses directional movement using another measure.
Check your understanding
Calculate relative ATR as an explicit comparison aid.
Show the answer and explanation
5%
Divide ATR in price units by price: 4 / 80 × 100 = 5%. The percentage helps compare scale, but does not represent a maximum future loss.
Volatility and transformed data
Step 1 / 9 · 0 / 9 reviewed
View the full sequence →Progress is saved only in this browser.
Read the fuller explanation
Related terms
Sources and documentation
- StockCharts – ATR
The three true-range distances, their maximum and Wilder ATR smoothing.
Document read: - John Bollinger – band rules
Band touches, historical dispersion and normalized BandWidth; touches alone are not orders.
Document read:
The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.