Introduction:
In trading, the volatility of an instrument is significant before taking any positions. A higher volatility means higher trading activity. But how do you know about the volatility of a trading instrument? An indicator called “Synthetic VIX Indicator” can be used to measure the market’s volatility. Even though it was initially developed to know about the volatility of the S&P 500, now people use it to know about the volatility of all markets and instruments. This indicator has proven to be quite helpful.
There are some other indicators that you can use to know the market’s volatility, but among all of them, the Synthetic VIX Indicator for MT4 is most accurate.
Indicator Settings:
In the settings of this indicator, we can change the VIX period based on which the volatility is calculated. The default value is 22 MA, but you can change it to experiments and check if some other MA works better for you.
Working of Synthetic Vix Indicator:
The VIX indicator works by doing the calculations on past data of the market. Principally it uses 22-period moving average for the measure of the volatility of the market.
These are the steps that the VIX indicator takes to calculate the volatility of a market.
- It finds out the highest close price among the last 22 candles
- After that, the indicator subtracts the low value of the current bar.
- In the end, it divides the result by the highest close price of the last 22 candles.
This gives users the result in for form of a float value somewhere between 0 and 1. We can also convert this result into a percentage by multiplying it by 100.
Using the indicator of Synthetic VIX Indicator:
VIX indicator does not generate signals. It gives us the value of volatility between 0 and 1. Typically more volatility means that the instruments price is going down and less volatility means the instrument’s price is going up. The price and volatility work relatively in the opposite direction.
In the picture below, we can see that when the currency pair’s price is in a bullish direction, the volatility starts going down and vice versa. Tere is one important to notice. Volatility indicator is not very helpful in ranging markets.
Conclusion:
A synthetic VIX indicator is a necessary tool that you should use if you are not using it already. Because it lets us know about the volatility and the last thing a trader wants is to put money in a trade and see minimal movement in the market. You can download the VIX indicator for free from the link below.
Download indicator