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This calculation
of the trading range takes place over a certain time-period for defining if an issue is being "dumped" and is approaching a bottom or not. |
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| In forex trading,
a rise in the volatility line over the reference line is a supposition to a valid bottom. In the same way, an indication of an inevitable peak would be a decrease in the volatility line below the reference line. As long as inconstancy is growing , the price is not likely to reach the top. |
It's important to
remember that this study in forex trading should be used together with trend following analyses and momentum oscillators for precision and confirmation.
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There are two
ways to interpret this measure of inconstancy in forex trading. The first method states that market peaks are usually followed by growing inconstancy and market bottoms are usually followed by decreased inconstancy.
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On the contrary,
Mr. Chaikin's method states that in forex trading a decrease in volatility over a longer time period depicts a close peak (for example, a mature bull market). And a rise in the Volatility indicator over a short time period demonstrates that a bottom is close (for example, a panic sell-off).
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