{"id":11543,"date":"2022-02-24T17:46:55","date_gmt":"2022-02-24T14:46:55","guid":{"rendered":"https:\/\/roboforex.com\/blog\/?p=11543"},"modified":"2026-05-26T10:52:42","modified_gmt":"2026-05-26T07:52:42","slug":"how-to-use-standard-deviation-indicator-in-trading","status":"publish","type":"post","link":"https:\/\/roboforex.com\/blog\/2022\/02\/24\/how-to-use-standard-deviation-indicator-in-trading\/","title":{"rendered":"How to Use Standard Deviation Indicator in Trading"},"content":{"rendered":"\n

Today the article is devoted to the Standard Deviation indicator. It helps evaluate the dynamics of volatility<\/a> of a financial instrument and find promising entry points.<\/p>\n\n\n\n

<\/span><\/a>What the indicator shows<\/span><\/h2>\n\n\n\n
Standard Deviation (STDev) is a trading instrument that shows how far the price of a financial instrument deviates from standard values of a certain period. It shows the deviation from a Simple Moving Average<\/a> and thus helps to assess the change in the price volatility<\/a>.<\/p>\n\n\n\n
The indicator conditionally belongs to trend ones: when it grows, this might mean the beginning of a new market trend. The higher the volatility and the more the price fluctuates from the average over the chosen period, the higher STDev values will be. And vice versa: if the quotes are stable, trading in a narrow price range, indicator values will fall to the lows.<\/p>\n\n\n\n
STDev can be used for trading on its own and alongside other indicators<\/a>. Also, it is used inside more complicated indicators. For example, it can be found in a famous channel indicator Bollinger Bands<\/a>: STDev helps to calculate the borders of the price range for the quotes.<\/p>\n\n\n\n
Standard Deviation appears in a separate window under the chart and has just one main line. Its values start with 0 and always remain positive, i.e. never drop under 0.<\/p>\n\n\n\n
The indicator does not show trend direction. The line will grow alongside the growth of volatility regardless of the market direction, equally when the quotes are growing and falling.<\/p>\n\n\n\n
$\"STDev$ <\/a>
STDev window<\/em><\/figcaption><\/figure>\n\n\n\n\n\n<\/span>How to install Standard Deviation<\/span><\/h2>\n\n\n\n
Standard Deviation is built in the majority of popular trading platforms. To install it on the chosen price chart on the MetaTrader 4<\/a> and MetaTrader 5<\/a> platforms, go to the Main Menu. Your algorithm is: Main Menu – Insert – Indicators – Trend – Standard Deviation.<\/p>\n\n\n\n
You can customize the following settings:
• Period is the period for which the indicator will be calculated. By default, it is 20.
• Apply to: choose the price that calculations will be based on. By default, it is Close.
• MA method is the calculation method for the MA. By default, it is Simple.
• Style sets the appearance of the line. You can change its color, width, and representation method.<\/p>\n\n\n\n
$\"Standard$ <\/a>
Standard Deviation settings<\/em><\/figcaption><\/figure>\n\n\n\n<\/span><\/a>Calculating Standard Deviation<\/span><\/h2>\n\n\n\n
To calculate the indicator, use the following formula of statistic average square deviation:<\/p>\n\n\n\n
Standard Deviation = Sqrt (SUM ((CLOSE - SMA (CLOSE, N)) ^ 2, N) \/N)<\/strong><\/p>\n\n\n\n
Where:
• Sqrt is the square root
• N is the calculation period
• SUM (..., N) is the value of the SMA(N)
• CLOSE is the closing price.<\/p>\n\n\n\n
Calculating STDev:<\/p>\n\n\n\n
• Calculate SMA(N)
• Subtract the SMA value from the Close price of the current TF
• Square the result and add it up.
• Divide the result by N.
• Take the square root.<\/p>\n\n\n\n\n\n
<\/span>How to trade by STDev<\/span><\/h2>\n\n\n\nStandard Deviation is often used alongside other indicators<\/a> and tech analysis<\/a> instruments, but equally it can be used on its own. It will help detect the beginning of a correction and its end. Here are two main trading signals<\/a> of the indicator — a reversal on extremes and an escape from the range.<\/p>\n\n\n\n
<\/span><\/a>Reversal on extremes<\/span><\/h3>\n\n\n\n
The signal appears when the Standard Deviation line demonstrates highs that can be visually detected in the indicator window. This indicates quite a strong movement that provoked a surge in volatility.<\/p>\n\n\n\n
The quotes have deviated from the average quite a bit, and the market is oversold\/overbought<\/a>. A correction or reversal can start at any moment.<\/p>\n\n\n\n
If the signal is against the current trend, this is a reason to close profitable positions because a reversal is very probable. To open new ones, extreme growth of the indicator in a correction should be used.<\/p>\n\n\n\n
In other words, if during a correction there is a noticeable surge in the indicator values and then the price reverses towards the current trend, this is a good signal to open a position by the trend.<\/p>\n\n\n\n
<\/span><\/a>Example of a reversal on extremes<\/span><\/h3>\n\n\n\n
• On H1 of XAU\/USD<\/a> a descending correction happened in an uptrend.
• Upon reaching the high on STDev, the price reversed upwards, confirming the end of the correction. A buying position by the trend can be opened.
• Stop Loss<\/a> is placed behind the low of the correction. Profit<\/a> can be taken as soon as the price reaches a strong resistance level<\/a> or after signals of a reversal downwards appear.<\/p>\n\n\n\n
$\"Example$ <\/a>
Example of a reversal on extremes<\/em><\/figcaption><\/figure>\n\n\n\n<\/span><\/a>Escape from the range<\/span><\/h3>\n\n\n\n
This signal appears after the quotes escape from a range — a correction area before the beginning of a new movement. Before the price escapes the range, the indicator line must be at its lows, and in the window a horizontal level through its nearest highs can be drawn. When the price escapes the range, STDev line also breaks through its level upwards, confirming the entry signal.<\/p>\n\n\n\n
<\/span><\/a>Example of an escape from the range<\/span><\/h3>\n\n\n\n
• On the H1 chart of USD\/JPY<\/a> the price comes out of a flat upwards.
• The indicator line confirms the signal rising above the level drawn through its nearest highs. A buying position can be opened.
• Stop Loss<\/a> is placed behind the local low. Profit can be taken when the price reaches an important resistance level or after some evidence of a reversal appear.<\/p>\n\n\n\n
$\"Example$ <\/a>
Example of an escape from the range<\/em><\/figcaption><\/figure>\n\n\n\n<\/span><\/a>Bottom line<\/span><\/h2>\n\n\n\n
Standard Deviation demonstrates the deviation of quotes from average values and thus helps the trader assess the current volatility levels.<\/p>\n\n\n\n
In trading, the instrument is most often used alongside other indicators and means of tech analysis<\/a>. Before using for real, the indicator should be tested on a demo account<\/a>.<\/p>\n\n\n\n
\n Open Trading Account<\/a><\/p>\n\n\n\n