Volatility - Indicator Formula

Note that this interpretation of volatility is very different from that expressed by the previously used standard deviation. This also applies to directionality.

A simple measure of Volatility is given by the range, that is the maximum deviation (H - L) indicated by the prices during the day or week or month: it's a solution that works well most of the time, but that unfortunately suffers from a fundamental limitation: it doesn't consider the days of violent fluctuation of the prices, that is the days in which there are narrow ranges (inside days).

Welles Wilder, one of the most brilliant theoreticians of the technical analysis, had this problem in mind and in his classic New Concepts in technical trading systems, he successfully tackled it defining the True Range.

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