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10.49 Volatility Ratio

The volatility ratio by Jack Schwager expresses the latest day’s trading range as a ratio of the overall range for a past N days. “True range” is used for both (see True Range), so gaps are included in the calculation.

For an N-day true range the close immediately preceding those N days is incorporated. Thus

TR Ndays = max(high[1], high[2], ... high[N], close[N+1])
         - min(low[1],  low[2], ...  low[N],  close[N+1])

The volatility ratio is then simply

          TR
VOLR = --------
       TR Ndays

When a strong breakout from a tight range occurs the day’s range can be a sizeable fraction of the recent range. A level of 0.5 is considered significant and that’s drawn as a line in Chart.


Copyright 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2014, 2015, 2016, 2017 Kevin Ryde

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