Standard Deviation (SD or 'σ')

◙ Primary Use: Measuring Market Volatility

◙ When Trading: Confirming Price Reversals

◙ Typical Settings: 20/21 Periods

Introduction To Standard Deviation

Standard deviation is a widely used statistical tool for measuring market volatility.

• Its symbol is the Greek letter sigma (σ).

Standard deviation is based on the concept of normal distribution, where values tend to cluster around a central average over time.

Understanding Standard Deviation

• A higher standard deviation indicates greater variability in data values.

• A lower standard deviation indicates less variability and more consistency around the mean.

  How to Calculate Standard Deviation

To calculate standard deviation:

1. Calculate the mean (average) of the data set.

2. Subtract the mean from each data point and square the result.

3. Sum all the squared deviations.

4. Divide the sum by the number of periods.

5. Take the square root of the result to get the standard deviation (σ).

 Trading with Standard Deviation

Standard deviation should not be used alone as a trading signal generator. Instead, use it to:

• Forecast potential price reversals, based on the idea of mean reversion.

• Confirm signals from other technical indicators, especially for price reversals.

• Assess market risk and adjust your money management strategies accordingly.

Platform Setup

To add Standard Deviation in MetaTrader:

1. Navigate to: INDICATORS → TREND → STANDARD DEVIATION

2. Use the default or set to: Period: 20 or 21

Summary: Using Standard Deviation

Standard Deviation is a powerful technical analysis tool for gauging volatility and supporting trading decisions—especially when used with other technical indicators.

■ What is Standard Deviation?

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