Standard deviation is a statistical term that refers to and shows the volatility of price in any currency. In essence standard deviation measures how widely values are dispersed from the mean or average.
Dispersion is effectively the difference between the actual closing value price and the average value or mean closing price.
The larger the difference between the closing prices from the average price, the higher the standard deviation and volatility of the currency is. On the other hand - the closer the closing prices are to the average mean price, the lower the standard deviation or volatility of the currency is.
Technical Calculation
Here is the technical bit don’t worry if you find it a little complicated we will simplify things in a minute – here is the calculation:
Standard deviation the square root of the variance, and the average of the squared deviations from the mean.
High Standard Deviation is present when the price of the currency studied is changing volatile and has large daily ranges. On the other hand, low Standard Deviation values
take places when currencies are range trading or in consolidation i.e. when prices are more stable and less volatile.
Spotting Big Contrary trades
Major tops and bottoms and important trend changes are accompanied by high volatility as prices reflect the psychology of the participants and greed and fear push prices away from the fundamentals.
If you look at any forex chart you will see price spikes caused by human emotion and they are not sustainable and prices tend to return to more realistic levels after periods of high volatility – you will often here the term blow off top or bottom where prices make one last volatile surge and reverse.
Dispersion is effectively the difference between the actual closing value price and the average value or mean closing price.
The larger the difference between the closing prices from the average price, the higher the standard deviation and volatility of the currency is. On the other hand - the closer the closing prices are to the average mean price, the lower the standard deviation or volatility of the currency is.
Technical Calculation
Here is the technical bit don’t worry if you find it a little complicated we will simplify things in a minute – here is the calculation:
Standard deviation the square root of the variance, and the average of the squared deviations from the mean.
High Standard Deviation is present when the price of the currency studied is changing volatile and has large daily ranges. On the other hand, low Standard Deviation values
take places when currencies are range trading or in consolidation i.e. when prices are more stable and less volatile.
Spotting Big Contrary trades
Major tops and bottoms and important trend changes are accompanied by high volatility as prices reflect the psychology of the participants and greed and fear push prices away from the fundamentals.
If you look at any forex chart you will see price spikes caused by human emotion and they are not sustainable and prices tend to return to more realistic levels after periods of high volatility – you will often here the term blow off top or bottom where prices make one last volatile surge and reverse.
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