Chaikin's Volatility
technical indicator compares the spread between a
stock's high and low prices.
It quantifies
volatility
as the range between the high and the low price.
Computing:
R = EMA(H - L, nperiods)
CV= (Ri - Ri-1) / Rn-nperiods+1
Where
EMA
represents the
exponential moving average.
R is the n-period exponential moving average of the difference between the security's high and low prices.
Ri is the value of R at period
i.
Ri-1 is the value of R of the
previous period.
Rn-nperiods+1 is the value of R
nperiods ago.
There are two typical trading rules to interpret this indicator:
1) Assume that market tops are accompanied by increased volatility and that the latter stages of a price bottom are indicated by decreased volatility.
2) Assume that a short-time increase in the volatility indicator indicates that a price is hitting bottom and
that a longer term decrease in volatility indicates an price peak.