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Forex traders always look for new indicators and strategies to improve their trading. One of the popular indicators that can be used to improve forex trading is Standard Deviation Channel. This indicator helps to identify the volatility of the market and gives traders an idea about the market trend. In this article, we will discuss how to create an indicator from a standard deviation channel.
What is Standard Deviation?
Standard Deviation is a statistical tool used to measure the volatility of the market. It measures how much prices vary from the average price. A high standard deviation means that prices are volatile, while a low standard deviation means that prices are stable.
What is Standard Deviation Channel?
Standard Deviation Channel is a trading tool that is based on the concept of standard deviation. It consists of three lines: the upper line, the middle line, and the lower line. The middle line is the simple moving average, and the upper and lower lines are calculated as the middle line plus and minus two standard deviations.
How to Create an Indicator from Standard Deviation Channel?
To create an indicator from a standard deviation channel, you need to follow these steps:
Step 1: Calculate the Simple Moving Average
The first step is to calculate the simple moving average. You can use any period that suits your trading style. For example, if you are a day trader, you can use a 20-period simple moving average.
Step 2: Calculate the Upper and Lower Bands
The next step is to calculate the upper and lower bands. To do this, you need to add and subtract two standard deviations from the simple moving average. You can use any period that suits your trading style. For example, if you are a day trader, you can use a 20-period standard deviation.
Step 3: Plot the Indicator
The final step is to plot the indicator on the chart. You can use any charting software that supports the standard deviation channel indicator.
How to Use the Indicator?
You can use the indicator to identify the market trend and volatility. When the market is trending, the price tends to stay within the standard deviation channel. When the market is volatile, the price tends to break out of the standard deviation channel. You can use this information to make trading decisions.
Conclusion
Standard Deviation Channel is a useful tool that can help forex traders to identify the market trend and volatility. By creating an indicator from a standard deviation channel, traders can get a better understanding of the market and make better trading decisions.
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FAQ
What is Standard Deviation?
Standard Deviation is a statistical tool used to measure the volatility of the market. It measures how much prices vary from the average price.
What is Standard Deviation Channel?
Standard Deviation Channel is a trading tool that is based on the concept of standard deviation. It consists of three lines: the upper line, the middle line, and the lower line.
How to Create an Indicator from Standard Deviation Channel?
To create an indicator from a standard deviation channel, you need to calculate the simple moving average and the upper and lower bands. You can then plot the indicator on the chart using any charting software that supports the standard deviation channel indicator.
How to Use the Indicator?
The indicator can be used to identify the market trend and volatility. When the market is trending, the price tends to stay within the standard deviation channel. When the market is volatile, the price tends to break out of the standard deviation channel.