Forex Indicator MT4

# Standard Deviation (StdDev)

What is Standard Deviation(StdDev) indicator, the instructions of Standard Deviation (StdDev) and how to use the Standard Deviation (StdDev) indicator, the calculation of Standard Deviation (StdDev) indicator and the Standard Deviation (StdDev) indicator main parameters

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## Introduction

Standard deviation is a statistical term that measures the amount of variability or dispersion around an average. Standard deviation is also a measure of volatility. Generally speaking, dispersion is the difference between the actual value and the average value. The larger this dispersion or variability is, the higher the standard deviation. The smaller this dispersion or variability is, the lower the standard deviation. Chartists can use the standard deviation to measure expected risk and determine the significance of certain price movements.

Technical indicator named Standard Deviation (StdDev) measures the market volatility. This indicator charactrizes the scale of price changes relating to the Moving Average. Thus, if the indicator value is large, the market is volatile and the bars prices are rather dispersed relating to the moving average. If the indicator value is not large, it means that the market volatility is low and the bars prices are rather close to the moving average.

Normally, this indicator is used as a constituent of other indicators. Thus, when Bollinger Bands is calculated, the value of the symbol standard deviation is added to its Moving Average.

The market behavior represents the interchange of high trading activity and languid market. So, the indicator can be interpreted easily:

• if its value is too low, i.e., the market is absolutely inactive, it makes sense to expect a spike soon;

• otherwise, if it is extremely high, it most probably means that activity will decline soon.

## Calculation

`StdDev (i) = SQRT (AMOUNT (j = i - N, i) / N)`
`AMOUNT (j = i - N, i) = SUM ((ApPRICE (j) - MA (ApPRICE (i), N, i)) ^ 2)`

Where:

• StdDev (i) — Standard Deviation of the current bar;
• SQRT — square root;
• AMOUNT(j = i – N, i) — sum of squares from j = i – N to i;
• N — smoothing period;
• ApPRICE (j) — the applied price of the j-th bar;
• MA (ApPRICE (i), N, i) — any moving average of the current bar for N periods;
• ApPRICE (i) — the applied price of the current bar.

## Measuring Expectations

The current value of the standard deviation can be used to estimate the importance of a move or set expectations. This assumes that price changes are normally distributed with a classic bell curve. Even though price changes for securities are not always normally distributed, chartists can still use normal distribution guidelines to gauge the significance of a price movement. In a normal distribution, 68% of the observations fall within one standard deviation. 95% of the observations fall within two standard deviations. 99.7% of the observations fall within three standard deviations. Using these guidelines, traders can estimate the significance of a price movement. A move greater than one standard deviation would show above average strength or weakness, depending on the direction of the move.

## Conclusions

The standard deviation is a statistical measure of volatility. These values provide chartists with an estimate for expected price movements. Price moves greater than the Standard deviation show above average strength or weakness. The standard deviation is also used with other indicators, such as Bollinger Bands. These bands are set 2 standard deviations above and below a moving average. Moves that exceed the bands are deemed significant enough to warrant attention. As with all indicators, the standard deviation should be used in conjunction with other analysis tools, such as momentum oscillators or chart patterns.

## Main Parameters

• MA period: MA(Moving Average) period, default is 20
• MA shift: MA(Moving Average) shift, default is 0
• MA method:
• Simple: Simple moving average
• Exponential: Exponential moving average
• Smoothed: Smoothed moving average
• Linear weighted: Linear weighted moving average
• Apply to: Applied price
• Close
• Open
• High
• Low
• Median Price, (high+low)/2
• Typical Price, (high+low+close)/3
• Weighted Close, (high+low+close+close)/4