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Trend indicators

Standard Deviation (indicator)

Measures how widely prices have been spreading around their average: a simple volatility gauge.

2 min read · Try it on a live chart ↗

The idea in plain words

If closes stay close to their average, the market is calm; if they scatter far from it, the market is volatile. Standard deviation puts one number on that scatter, in the same units as the price.

How it is calculated

For each of the last N closes, take its distance from the moving average, square it, average those squares and take the square root.

SD = √( Σ (close − MA)² ÷ N )   (default N = 20)

How to use it

  • Rising SD: volatility is increasing (often in breakouts or sell-offs).
  • Very low SD: unusually quiet, often before a big move.
  • Size positions and stops: wider stops when SD is high.

Drawing conclusions

  • SD is not directional: a sharp rally and a sharp fall both raise it.

Example

EURUSD's 20-day SD falls to its lowest level of the year; two days later a central bank surprise sends it up threefold.

Prices in examples are illustrative.

Watch out for

  • One huge candle can lift SD for the whole period afterwards.

A little history

The term was introduced by the statistician Karl Pearson in 1894; it is also the engine behind Bollinger Bands.

Educational content only. No indicator or pattern predicts the future, and nothing here is investment advice.