The default number is 12.
BuffSize: This setting affects both lines, but to a lesser degree, whereby the amplitude (height) of the signal lines is exaggerated or reduced. The default value is 96.
Advantages
* Provides indication of sufficient market volatility.
* Settings can modulate the degree of volatility for signal identification.
* Can be quickly tweaked.
How We Use It
The purpose of this indicator is to identify sufficient volatility in the market – similar to a volume indicator. It does NOT provide long or short signals. The original intent was a two lines cross where the red line (volatility) crossed and closed above the blue line (aggressiveness), this is accepted as the start of a trend.
B.E. Aggressive
However, we found that it created a lot of confusion and so many signals, so what did we do? We changed it. What did we change it to? Great question. We changed it to a mid-line cross. In this instance, that midline is 50 and got rid of the blue (aggressiveness) line. So, now it looks like this.
We Ain’t Done
Remember, you need to change your way of thinking for this indicator. In most instances, we’re conditioned to look for “long” and “short” signals. Not this time. Make sure your brain understands that we’re looking for “Yes – trade”, or “No – wait”. That’s the reason for a volume/volatility indicator. We’re only interested in a trade if the volatility signal line crosses and closes at the 50 line. Fuel for your trade.
What We Did
That being said, we need to put something else on the chart. We added a random color change confirmation indicator on the chart to make things easy to see. Whatever you’re using in your algorithm is fine for comparison. After all, you need a place to start. Let’s take a look at it now…and identify the signals.
Check Yourself
There were a total of 20 signals; a few were one candle color changes, so we counted them as well. There were 9 instances where the color change and volatility were in agreement and of those bunch, three of them would have been small losses and the remaining six would have been winners. Make sure you’re clear on this, once your algorithm gives you a long or short signal, the last thing you do is check the volatility indicator for confirmation. Remember, it’s a trade/no trade decision…not a long/short signal.
It’s Alright, It’s Okay
Now that we’re moving into the testing phase, we’re going to use a simple moving average to compare our volatility indicator. We won’t change the settings of the moving average, just the indicator’s variables. Why did we choose something different for testing? It really does not matter. We had to use something and since everybody has their own favorites, our choice becomes somewhat irrelevant. Our point is that the volatility indicator was able to provide good yes/no signals to return acceptable numbers. Let’s find out how it does.
Big Tests Today
If you’re new to these studies, we recommend looking at some of the older blogs to understand how we conduct our testing.
The six pairs we recommend testing are…
EUR/USD
AUD/NZD
EUR/GBP
AUD/CAD
CHF/JPY
CAD/SGD
The markets we test our indicators are the:
EUR/USD (Euro/US Dollar)
BTC/USD (Bitcoin/US Dollar)
XAU/USD (Gold/US Dollar)
SPX500 (S&P500 Index)
Timeframes and Results
We’ll run the Silence indicator on the EUR/USD, BTC/USD, XAU/USD, and the SPX500 using the default and tweaked settings across the daily and 4-hour timeframes on the MT4 strategy tester.
We focus on three metrics;
Total trades
Win/Loss ratio
ROI (return on investment)
Results Worth Writing Home About
Below, you’ll find the testing results from our efforts.
Solid
Numbers were pretty solid across the board here. We were pretty happy with the results. This was an interesting research project and we genuinely appreciate the suggestion. Hopefully this indicator finds its way into your trading toolbox.
Money Management
Money management is based on the NNFX risk profile. That information can be learned in the Advanced Course.
Resources
We’ve made the Silence indicator available for download on our site from the indicator library. When you’re ready to get it, click HERE.
We’re Here For You
Make sure you’re signed up for the latest digests. If you’d like to see what we talked about the last digest, email [email protected] with the title “Latest Digest Please” and we’ll send it off to you within 24 hours. And you’ll also want to subscribe to our YouTube channel for the technical analysis videos. Don’t forget Facebook and Quora, where we answer questions relating to Forex.
Our only goal is to make you a better trader.
BTW – Any information communicated by Stonehill Forex Limited is solely for educational purposes. The information contained within the courses and on the website neither constitutes investment advice nor a general recommendation on investments. It is not intended to be and should not be interpreted as investment advice or a general recommendation on investment. Any person who places trades, orders or makes other types of trades and investments etc. is responsible for their own investment decisions and does so at their own risk. It is recommended that any person taking investment decisions consults with an independent financial advisor. Stonehill Forex Limited training courses and blogs are for educational purposes only, not a financial advisory service, and does not give financial advice or make general recommendations on investment.