# Identify Price Volatility As Early As Possible With Moving Averages

#### Nagappan

##### Member
Hi all,

This is to identify price volatility as early as possible by using EMA

Concept :

If price increase, then slope of the average line should also increase. If price decrease, then slope of the average line should also decrease.

If price moves in sideways, then slope of the average line should be zero

See this picture :

Method :

Plot these two EMA : 15 Period EMA & 3 Period EMA of 15 Period EMA

If there is no difference between these two lines, then market is in indecision phase. If there is enough difference, then market is trending in one of the direction.

I use this in one hour time frame to identify market volatility then I trade in 15 mins / 3 mins timeframe

This gives me early signal than using Bollinger Band / ADX

Check these pics too :

Reagrds,
Nagappan

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#### Happy_Singh

##### Happy
Hi

Do you know what is MACD?

Its nothing but the difference between two moving averages and
the signal line is the moving average of this difference

Code:
``````r1 = Param( "Fast avg", 3, 2, 200, 1 );
r2 = Param( "Slow avg",15, 2, 200, 1 );
r3 = Param( "Signal avg", 5, 2, 200, 1 );
Plot( ml = MACD(r1, r2), StrFormat(_SECTION_NAME()+"(%g,%g)", r1, r2), ParamColor("MACD color", colorRed ), ParamStyle("MACD style") );
Plot( sl = Signal(r1,r2,r3), "Signal" + _PARAM_VALUES(), ParamColor("Signal color", colorBlue ), ParamStyle("Signal style") );
Plot( ml-sl, "MACD Histogram", ParamColor("Histogram color", colorDefault ), styleNoTitle | ParamStyle("Histogram style", styleHistogram | styleNoLabel, maskHistogram ) );``````

Happy

#### Nagappan

##### Member
Hi

Do you know what is MACD?

Its nothing but the difference between two moving averages and
the signal line is the moving average of this difference
MACD works with difference between two different period EMA then signal line of the final EMA.

I too use similar concept but directly with 15 Period EMA and 3 Period Signal line.

There are some differences in the end result.

Reagrds,
Nagappan

#### Happy_Singh

##### Happy
MACD works with difference between two different period EMA then signal line of the final EMA.

I too use similar concept but directly with 15 Period EMA and 3 Period Signal line.

There are some differences in the end result.

Reagrds,
Nagappan
These is no difference except the way they are plotted . . .
MACD as a Histogram, and two MA directly on the price chart . . .

but use whatever gives you better results :thumb:

Happy

#### Nagappan

##### Member
These is no difference except the way they are plotted . . .
MACD as a Histogram, and two MA directly on the price chart . . .

but use whatever gives you better results :thumb:

Happy
There is difference in calculation parts and graph will be plotted accordingly.

But this gives me some good result and also I can compare with price directly in the same graphical area.

With help of MACD, it is possible to identify the decreased volatility at the exact point or with some delay. But with EMAs plotted in the graph, it is possible to identify it in early stage.

Anyway, this works better for me.

Regards,
Nagappan

#### wisp

##### Well-Known Member
There is difference in calculation parts and graph will be plotted accordingly.

But this gives me some good result and also I can compare with price directly in the same graphical area.

With help of MACD, it is possible to identify the decreased volatility at the exact point or with some delay. But with EMAs plotted in the graph, it is possible to identify it in early stage.

Anyway, this works better for me.

Regards,
Nagappan
Thanks, do you use Close for plotting EMA?

#### Nagappan

##### Member
Thanks, do you use Close for plotting EMA?
Yes. 15 EMA of open, is giving more or less same result but I use close.

#### Happy_Singh

##### Happy
Yes. 15 EMA of open, is giving more or less same result but I use close.
On a specific Time frame with Price

Open is a trailing indicator, where as Close is a leading indicator . . .

So when you are using 2 MAs (of any kind) there will be a small advantage
if you use Open on bigger Period / slower MA and close with faster / smaller period MA

But in the Op's case as the difference between the two MA's is big (5X)
the smaller MA can be treated as a proxy to the price . . .

For anyone wants to try it out can check plotting . . .

Code:
``````P = Param("Period",30,2,99,1);
Plot(EMA(Close,P),"MA-Close", colorBlue);
Plot(EMA(Open,P*1.2),"MA-Open", colorRed);``````

Happy

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#### wisp

##### Well-Known Member
With Price, on a specific Time frame

Open is a trailing indicator, where as Close is a leading indicator . . .

So when you are using 2 MAs (of any kind) there will be a small advantage
if you use Open on higher Period / slower MA and close with faster / smaller period MA

But in this case as the difference between the MA's is 5X (big)
the smaller MA can be treated as a proxy of price . . .

For anyone wants to try out can check plotting . . .

Code:
``````P = Param("Period",30,2,99,1);
Plot(EMA(Close,P),"MA-Close", colorBlue);
Plot(EMA(Open,P*1.2),"MA-Open", colorRed);``````

Happy
Hi, thanks, what does P*1.2 do? I am assuming it is period multiplied by 1.2? not sure...

Nagappan's system is 15EMA (C) and 3EMA of 15EMA(C)

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#### Nagappan

##### Member
Open is a trailing indicator, where as Close is a leading indicator . . .
Yes. If open price is used to plot EMA then increased volatility is visible one or two candles later than close price EMA.

Close price is leading when compare to open price

It is better to choose one based on trial and error method