Standard Deviation

The Standard Deviation is a statistical measurement that measures currency, stock and equity’s volatility, by disclosing the difference between the price and the average price. Hence part of the calculation is based on Bollinger Bands. STD informs the trader how much change occurred between each closing price and whether the price increased or decreased.

Calculation

1. Calculate the mean price of the instrument for a number of periods

2. Calculate the difference between the instruments closing price and average price for each period – this is the deviation

3. Square each deviation and add all deviations (for each period) together

4. Divide this figure by the number of periods

5. Then square room this figure to find the standard deviation over the periods


The formula for this is:

Signals
  • If STD value is low this means that the market is inactive and an increase in activity can be expected soon
  • If STD value is high this implied that activity will soon decline.