Standard Deviation indicator

Standard deviation of price is a statistical term that gives an indication of the volatility of price in a market and it can be applied to any investment market - shares, bonds, commodities and of course forex. It may seem a bit confusing at first, but it’s totally logical. Standard Deviation simply measures volatility statistically and shows the difference of the values from the average one and is calculated by taking the square root of the variance, the average of the squared deviations from the mean. Understanding the concept of standard deviation of price is essential if you want to win at forex trading. If you understand it and its significance you can get a head start on the vast losing majority and enjoy greater forex profits.

Standard deviation measures how widely values (closing prices) are dispersed from the average price. Dispersion is the difference between the actual value (closing price) and the average value (mean closing price). The bigger the difference between the closing prices and the average price, the higher the standard deviation will be and therefore the volatility of the market.

Standard deviation is logical and will help you time entries better and define targets for trader. High Standard Deviation values occur when the data item being analyzed is changing dramatically. And low Standard Deviation values occur when prices are more stable. 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. Major tops and bottoms are accompanied by high volatility as prices reflect the psychology of the participants.

Important ways to use standard deviation are Targeting entries within trends, if prices spike away from the mean to far, they will fall back to the average eventually. And if prices are trading in a narrow range and suddenly high standard deviation pushes prices away from the mean, you can trade with the break.

If you are interested in currency trend following then you need to understand and cope with standard deviation of price