Standard deviation is a statistical term that measures the amount of variability or dispersion around an average. It is also a measure of volatility. Standard deviation Indicator dispersion is the difference between the actual value and the average value. This indicator describes the range of price fluctuations relative to Moving Average. This indicator is mainly used in technical analysis and trading systems to statistically measure a stock’s volatility by showing the difference between the price and the average price. Generally, this indicator is used as a component of other indicators.
If traders want to know more about the Standard Deviation Indicator, then they can find the same in the STUDIES section of Zerodha Kite. Kite mobile App too has this indicator incorporated in it. The default Period is 14 and you can set the value of it high and low. The Field is Close you can change this. The Standard Deviations is 2 and you can change this value high or low. The Moving Average Type of this indicator is simple. In this indicator on to any charts likes daily, weekly, monthly or intraday you can attach. You can also check how we attached the Standard Deviation Indicator in Reliance Industries share price chart.
Calculation of Standard Deviation Indicator :
Standard deviation (SD) = Sqrt [(Sum the ((Close for each of the past n Periods – n Period SMA for current bar)^2))/ n].
How this indicator works :
- Standard deviation rises as prices become more volatile. As price action calms, standard deviation heads lower.
- Standard deviation is increased with moving price and it show above average strength or weakness.
- In this indicator market tops are accompanied by increased volatility over short periods of time indicate nervous and indecisive traders. Also, market tops with decreasing volatility over long time frames indicate maturing bull markets.
- In Standard deviation indicator market bottoms that are accompanied by decreased volatility over long periods of time indicate bored and disinterested traders. Also, market bottoms with increasing volatility over relatively short time periods indicate panic sell-offs.
The standard deviation is a statistical measure of volatility. In this indicator, the price moves greater than the standard deviation and show it above average strength or weakness. It is also used with other indicators like Bollinger Bands. In this indicator moves that exceed the bands are deemed significant enough to warrant attention. The standard deviation indicator should be used in conjunction with other analysis tools as with all indicators.
Categories: Technical Indicators