What it is and how to use it
What is it?
The Price Volatility Ratio (PVR) compares the current price range to historical price ranges to gauge volatility. PVR is useful for traders to assess whether the current volatility is higher or lower compared to historical norms.
Who made it?
The concept of Price Volatility Ratio is not attributed to a single creator but has become a staple in volatility analysis.
How is it calculated?
The formula for Historical Volatility (HV) is similar to Standard Deviation but applied to returns:
PVR = (Current High - Current Low) / average(Historical High - Historical Low)
Where:
Current High is the highest price of the current period.
Current Low is the lowest price of the current period.
Historical High and Historical Low are the highest and lowest prices over the specified historical periods.
Code (ProRealTime)
How do you use it?
Price Volatility Ratio can be used in several ways:
Volatility Analysis:
Identify unusual price movements and adjust your trading strategies accordingly. A high PVR indicates unusually high volatility, signaling a potential breakout or trend change.
Risk Management:
Helps you set stop-loss levels and position sizes based on current market conditions.
Market Sentiment:
Provides insights into market sentiment by comparing current price movements to historical norms.
FAQ
Q: What are the best settings for PVR?
A: The default setting for PVR is typically 14 periods. You can adjust this based on your trading strategy and the asset you're analyzing.
Q: Is PVR good for day trading?
A: PVR can be useful for day trading as it helps you identify unusual price movements and adjust your strategies accordingly.
Q: How can PVR be used to improve trading?
A: PVR helps you spot unusual price movements, providing potential entry and exit points. It's useful for confirming trends and identifying reversals.
Strategies using Price Volatility Ratio
None so far.
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