Forex standard deviation indicator

One of the most popular tools in Forex analysis is standard deviation. In short, people call this SD. SD is probably the best gift of statistics. It’s one that traders love. Its uses are amazing. And its uses are widespread. From scientists to businessmen, all love it. Financial traders have always appreciated this tool. And currency markets are no different. The Forex standard deviation indicator is hugely useful. Most traders with experience love using it. 

Predicts volatility:

This tool measures volatility. And it does so reliably. It predicts how volatile a currency might be. And SD tells you about future prices. It does so by studying recent price movements. This tells you whether volatility will go up or down. There are two basic signals that SD gives out.

  • A large SD means large price change. But that also means volatility will go down.

  • A small SD says small price change has occurred. But that may mean impending volatility.

Therefore one thing is clear. This tool is a true indicator of volatility. This works quite like Bollinger Bands. In fact, it’s a part of Bands. It has always acted as its complement.

Measures deviation:

Deviation indicator Forex is one that measures price deviation. It studies deviation with respect to MA. MA is moving average. So when it shows a large value, it means there is a high dispersion of candlesticks. But value may be low. Then it denotes prices are closer to the MA.

Predicts market behavior:

This tool is rather easy to interpret. Market behavior is very important for a trader, be it in any financial market. And therefore this tool is very important. It gives you a true picture of market conditions. Thus one can easily differentiate between a sluggish and an active market. Therefore this tool is very popular.

Forex standard deviation indicator - a probability model:

Probability is a very important aspect. It predicts whether a condition will occur. And it does so with some certainty. In financial markets this capability is crucial. Therefore using probability models is vital. And Forex standard deviation indicator is a probability measure. So it comes in handy.

Tells you about reversals:

This tool predicts reversals. Now being able to do that is very useful. Market reversals are both good and bad. It depends on whether you can predict them. So if a market is one the verge of reversing, this tool warns you. It predicts retracements. It does so in a similar way to the RSI. In fact, all oscillators use the same principle for predicting reversals.

Simple principle:

The principle it works on is simple. It says if there is a deviation from the mean, there will be a retracement too. Prices will move back towards mean again. So it says that the overall distribution will come back. It'll again fit the standard price distribution. This principle is used in constructing most oscillator indicators. Thus this tool is important for other strategies too.

Forex standard deviation indicator is quite reliable. Numerous traders rely on this for their trading. This includes even experienced ones. In fact, even new indicators need this. Developers use SD for improvements in new tools. So use this with ease and improve your trading. This tool is unique.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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