What it is
Standard deviation is a statistics measure of spread. On a chart it tells you how far closes typically sit from their moving average. A low number means closes are bunched together; a high one means they are scattered.
It sits in its own pane in price units, so on gold it reads in points of gold and on US30 in index points. It is the same number that sets the width of Bollinger Bands.
How it is calculated
1. Take the simple average of the last 20 closes. 2. For each of those closes, find how far it is from the average. 3. Square each distance, so big misses count more and signs disappear. 4. Average the squared distances. 5. Take the square root. The result is back in price points.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| length | 20 | 2 to 400 | How many closes it measures. Shorter reacts quickly to a burst; longer shows the bigger volatility picture. |
How to read it
How to trade it
- 1
Read the current value and compare it with its own average to see if the market is quiet or busy.
- 2
Entry trigger: after standard deviation falls to a low for the last 50 or so candles, buy or sell the first close outside the quiet range. On gold 1 hour that might be a close 3 points beyond the range edge.
- 3
Stop: 1.5 to 2 times the current standard deviation from entry. If it reads 6 points on gold, a 9 to 12 point stop gives room for normal noise.
- 4
Target: 2 times the stop, or exit when standard deviation peaks and starts to fall.
- 5
Use it to resize: when it doubles, halve your position so the risk in money stays the same.
The breakout idea is cancelled if price closes back inside the quiet range and standard deviation turns back down.
WickSpeak draws it on the chart and writes a plain-English reading on the live candle: what it is, what it is doing now, how to trade it and what would prove it wrong. Playbook can test it as a condition in a play: is above its own average, is below its own average, is rising and is falling.
Best markets and timeframes
Works on every market and timeframe. For gold and US30 traders it is most useful on 15 minute to daily charts for comparing today's volatility with normal.
Common mistakes
- Reading a rise as bullish; it rises in sell offs too.
- Comparing raw values across markets with very different prices.
- Assuming prices are normally distributed; markets have more big moves than the bell curve suggests.
Works well with
Questions traders ask
What does standard deviation tell you in trading?
It tells you how far closes usually sit from their average, in price points. Rising standard deviation means volatility is increasing; falling means it is decreasing.
What is the best period for standard deviation?
20 is the most common because it matches Bollinger Bands. Use 10 for a quicker read on intraday charts or 50 for a broader view.
Standard deviation or ATR for stops?
ATR measures candle ranges including gaps, so it is the usual choice for stops. Standard deviation measures how far closes drift from the average, which suits mean reversion and band strategies.
Is a high standard deviation good or bad?
Neither. It means bigger moves, which offers larger targets but needs wider stops and smaller size.