Chaikin Volatility Indicator or CVI was developed by Marc Chaikin. He 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.
Some Common FAQ
This indicator measures the difference between two moving averages of the volume-weighted accumulation/ distribution line. Thus it differs from the Average True Range or 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 indicators occurs before the market makes a new high. A sharp fall in volatility indicates that a reversal is likely.
The volatility indicators indicate how volatile a stock, index, or commodity is at a given point in time. The more volatile a stock, the more frequent ups, and downs happen in its price. When the volatility is high, the stock’s daily range is also high. On the other hand, when the volatility is low, the stock’s daily range is also low.
Chaikin Volatility Indicator Formula
This indicator is a volatility indicator that 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 the Chaikin Volatility Indicator on the Charts?
Chaikin Volatility Indicator in Zerodha Kite
- Open the MarketWatch on Zerodha Kite.
- Select your stock and right-click on it and select the chart icon.
- Open the chart window of the stock.
- Go to Chaikin Volatility from the Studies and click on it.
- The default parameters window will open where you can select the parameters.
- By default, the period is 14 and the rate of change is 2 and the moving average type is simple.
Chaikin Volatility Indicator in Upstox Pro
Just like Zerodha, this indicator is available in the Upstox Pro trading terminal. Here also the default parameter is 14 period. The rate of change is 2 and the moving average type is simple.
Chaikin Volatility Indicator Trading Strategy
CVI provides us with a measurement of volatility based on the range between the high price and the low price. A much broader range means the volatility is high. This indicator helps to identify potential tops and bottoms. Like the ATR it does not take into account the gaps in the chart. This indicator is an oscillator and it oscillates above and below the zero line. Simply speaking above 0 is considered as more volatile and below 0 is considered as less volatile.
#1 The basic trading strategies
In general, the basic signals are the increased volatility in a bull market denotes a potential market top. And a decreased volatility with a fall in price denotes a potential bottom.
#2 The advanced trading strategies
As per the advance signals, in case the increase of volatility within a bear market is in a short time, the bottom can be very near. And if the decrease of volatility is over a longer period in a bull market, it denotes a potential end of the bull market.
#3 Extended trading strategies
If the indicator peaks with a rise in price, the market can turn flat from a new high. While a sharp decline in the indicator with a drop in price means that the movement is dying down and reversal can be near.
I do suggest the following ebook for further studies: Volatility Indicators: Techniques for Profiting from the Market’s Moves.
Chaikin Volatility as a technical indicator primarily measures price volatility. It does this by comparing the difference between a series of 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.