Introduction
Standard Deviation is a statistical measure of volatility.
Standard Deviation is typically used as a component of other indicators, rather than as a
standalone indicator. For example, Bollinger
Bands are calculated by adding a security's Standard Deviation to a moving average.
High Standard Deviation values occur when the data item
being analyzed (e.g., prices or an indicator) is changing dramatically. Similarly, low
Standard Deviation values occur when prices are stable.
Many analysts feel that major tops are accompanied with
high volatility as investors struggle with both euphoria and fear. Major bottoms are
expected to be calmer as investors have few expectations of profits.
The following chart displays a hilowclose chart and its
10week Standard Deviation:
The Standard Deviation is calculated as follows:
where
