Standard Deviation Price Change

ThinkScripter — Thu, 19 Mar 2009 13:12:36 +0000

In his book, The Volatility Edge in Options Trading, Jeff Augen describes a method for recasting absolute price changes in terms of recent volatility using the standard deviation. In this representation of price action, the last bar’s price change is represented as its ratio to the standard deviation of the price action over a recent period. *** Please see Tom’s N-1 weighted version in the comments! ***

Augen Standard Deviation Plot

# AUGENSTDDEVPLOT
# (c) 2009 http://www.thinkscripter.com
# thinkscripter@gmail.com
# Last Update 19 MAR 2009</code>

declare lower;
input price = close;

input length = 20;
def oneSD = stdev (price,length);

plot StdDevPlot = (price-price[1])/oneSD;
StdDevPlot.setPaintingStrategy(paintingStrategy.HISTOGRAM);
StdDevPlot.setLineWeight(2);
StdDevPlot.assignValueColor(if StdDevPlot > 0 then color.green else color.red);
plot zero = 0;
zero.setDefaultColor(color.white);

ThinkScripter » Jeff Augen

Standard Deviation Price Change