Standard Deviation

 

Introduction
Standard Deviation is a statistical measure of volatility. Standard Deviation is typically used as a component of other indicators, rather than as a stand-alone 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 hi-low-close chart and its 10-week Standard Deviation:

StandardDeviation.gif (6909 bytes)

The Standard Deviation is calculated as follows:

standardeviacalc1.gif (856 bytes)

where

standardeviacalc2.gif (561 bytes)