The Volatility Quality (VQ) Indicator is a technical tool designed to help traders identify high-quality trends and avoid false signals in choppy markets. Popular among forex traders, it works best in trending markets with high volatility, providing clear buy and sell signals and assisting traders in maximizing profits.
Foundations of the Volatility Quality Indicator
The Volatility Quality Indicator is based on the percentage of Average True Range (%ATR), which helps filter trade signals and measure Trend Strength. Developed by Thomas Stridsman for stock analysis, it combines:
Weighted Moving Average (WMA) of Open-High-Low-Close values
Smooth Moving Average (SMA)
This combination calculates the indicator values and provides visual cues for trend direction and strength.
Green indicator: Bullish market; moves upward as the uptrend continues.
Red indicator: Bearish market; moves downward as the downtrend continues.
These color changes make the VQ indicator an effective tool for trend-following strategies.
How to Trade Using the Volatility Quality Indicator
The VQ indicator is versatile and can be used for range trading, breakout trading, and trend trading.
Range Trading Example (EUR/AUD H4 chart):
Support level: 1.54270 (aqua blue)
Resistance level: 1.56242 (black)
Buy/Long Position
Enter a buy trade when the price reaches the support zone.
Confirm the trade with the VQ indicator changing from red to green, accompanied by an upward arrow or alert.
Close the position near the resistance zone, where the indicator turns red.
Sell/Short Position
Enter a sell trade when the price reaches the resistance zone.
Confirm the trade with the VQ indicator changing from green to red, accompanied by a downward arrow or alert.
Close the position near the support zone, where the indicator turns green.
Key Advantages
Works across all timeframes: monthly, weekly, daily, hourly, and minute charts.
Suitable for swing trading, intraday trading, day trading, and Scalping.
Helps traders focus on high-volatility, trending markets and avoid false entries.
Provides clear color-coded trend signals and alerts for easy trade execution.
Conclusion
The Volatility Quality Indicator is an essential tool for trend-following traders. By highlighting market direction, filtering signals using %ATR, and providing color-coded alerts, it allows traders to identify high-probability entries and exits. It is particularly effective in volatile markets and can be used for a wide range of trading styles, from scalping to long-term swing trades.
