Chaikin volatility indicator was developed by Marc Chaikin who also has developed the Chaikin Money Flow or CMF indicator. Volatility is depicted by the indicator because it calculates the difference between the high and low for every period or candle. The indicator measures the difference between two moving averages of volume-weighted accumulation/ distribution line. Thus it differs from ATR because it does not take into account the price gaps. When the indicator picks, the price retreats from a new high. A sharp rise in volatility indicator occurs before the market makes a new high. Sharp fall in volatility indicates that a reversal is likely. The default parameters are 14-period simple moving average (SMA) and 2-period Rate of Change. Zerodha Kite technical charts can plot this indicator as usual for Indian traders.
Chaikin volatility Indicator Formula
This indicator is a volatility indicator which calculates the exponential moving average of the difference between the current period’s high and low prices and its value in a number of periods previously. A sudden increase indicates a directional move.
How to set up Chaikin volatility indicator in Zerodha Kite?
- Go to MarketWatch.
- Choose the stock you are going to trade.
- Right click on the stock and select chart from graphic icons.
- Chart window of the stock opens.
- Go to studies. Select studies.
- Go to Chaikin volatility and click on it.
- A small window opens with default parameters of the indicator.
- Once the parameters are selected, the Done command is chosen, the parameters window goes off the screen and the indicator is plotted on stocks price.
Chaikin volatility Indicator Usage In intraday –
- The indicator shows price trend and trading opportunities.
- The picture above shows State Bank of India (SBIN) stock price movement with respect to the indicator.
- The chart shows 1 min. timeframe.
- The strategy shows the price trend. Understanding price trend from this indicator is important before creating a position.
- In 1 minute chart, traders may find many whipsaws which will be eliminated if longer time frames are used and this indicator is used with a combination of other indicators.
Chaikin Volatility as a technical indicator primarily measures price volatility. It does this by comparing the difference between a series of a securities high and low prices. The indicator generally fluctuates around zero, with high values indicating the prices are changing sharply as compared to the recent past. Low values in this indicator denote that the prices are stable and more or less stagnant.