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PRo/ProFX
Interpretation
There are three ways to use the VHF indicator:
• VHF values above or below certain levels indicate the degree of
trending. The higher the VHF, the higher the degree of trending.
• The direction of the VHF can be used to determine whether a
trending or congestion phase is developing. A rising VHF indicates
a developing trend; a falling VHF indicates that prices may be
entering a congestion phase.
• The VHF as a contrarian type indicator. Expect congestion to follow
high VHF values. Low VHF values may indicate a trending phase
will soon follow.
Volatility, Chaikin’s
The Volatility indicator compares the spread between a security’s high
and low prices. This is done by first calculating a moving average of
the difference between the daily high and low prices and then
calculating the percent rate-of-change of that moving average.
Before calculating the Volatility indicator, you are asked to enter the
number of time periods in the moving average and the number of time
periods in the R.O.C. The author of this indicator (Marc Chaikin)
recommends 10-periods for both the moving average and the R.O.C.
References:
• For MetaStock plotting indicators, see page 237.
• For Chaikin’s Volatility indicator parameters, see page 277.
Interpretation
This indicator quantifies volatility as a widening of the range between
the highs and the lows (i.e., wider price swings during the day).
There are two ways to interpret this measure of volatility. One method
assumes that market tops are generally accompanied by increased volatility
and that market bottoms are generally accompanied by decreased volatility.
An opposing method (Mr. Chaikin’s) assumes that an increase in the
Volatility indicator over a short time period indicates that a bottom is near
(e.g., a panic selloff) and that a decrease in volatility over a longer time
period indicates an approaching top (e.g., a mature bull market).
Tips:
• Mr. Chaikin recommends that investors do not rely on any one
indicator and suggests using a moving average penetration or
trading band system to confirm this (or any) indicator.
• An example custom indicator (page 290) shows how to calculate
Chaikin Volatility.
Note: Because this indicator uses high and low prices in its calculation,
it will not work on securities that only have a closing price (e.g., most
mutual funds).
MetaStock 11 Professional
Line Study and Indicator Interpretation • 407