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In his book New Concepts in Technical Trading Systems, J. Welles Wilder Jr. talks about volatility and describes his Volatility Index and Volatility System. Both of these can be performed in MetaStockTM for Windows. This document describes how to construct both the index and the system.
The Volatility Index (VI) is described by Wilder as:
VI Today = (13 * VI Prev + TR1) / 14 where TR1 is today's true range.
He defines the true range as the greatest of the following:
1. The distance from today's high to today's low
2. The distance from yesterday's close to today's high, or
3. The distance from yesterday's close to today's low.
In MetaStock version 5.0 or higher you would use the following function.
VI Today = ATR(14)
The Volatility System is:
Enter Long
Cross(C,Ref(LLV(C,7),-1)+(Ref(ATR(7),-1)*3))
Enter Short
Cross(Ref(HHV(C,7),-1)-(Ref(ATR(7),-1)*3),C)
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Rank: Advanced Member
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