Standard Deviation (20, 1)

The Standard Deviation (20, 1) is a volatility indicators indicator used in Skyrexio Strategy Builder for volatility assessment and risk management.

Introduction

The Standard Deviation is a volatility measurement indicator that provides strategy selection and risk management capabilities for both LONG and SHORT strategies. This statistical measure quantifies the dispersion of prices from their average over a specified period, making it essential for understanding market volatility, setting appropriate position sizes, and selecting optimal trading strategies based on current market conditions.

How Standard Deviation Works

Standard Deviation measures how much prices deviate from their average over a specified period. It's calculated as the square root of variance and forms the basis for Bollinger Bands. The calculation quantifies price dispersion, providing objective volatility measurements.

• Volatility quantification - Measures the degree of price variation from the mean • Risk assessment - Higher standard deviation indicates higher risk and uncertainty • Strategy selection - High StdDev suggests trend-following, low StdDev suggests mean-reversion • Bollinger Band foundation - Standard deviation determines Bollinger Band width • Market regime identification - Helps classify market conditions for appropriate strategies

Statistical Psychology: Standard Deviation reflects market consensus and disagreement. High standard deviation indicates participants have widely different opinions about fair value, creating volatility. Low standard deviation suggests market consensus, leading to quieter price action. This makes it invaluable for adapting strategies to market conditions.

Key Characteristics

Attribute	Details
Category	Volatility Indicators
Type	Statistical Volatility & Strategy Selection
Primary Use	Volatility measurement, strategy selection, risk management
Timeframe	All timeframes supported (1m to 1M)
Confirmation	Volume, price action, trend indicators

Strategy Applications

🟢 LONG STRATEGY (Context-Dependent)

Standard Deviation is excellent for LONG strategies when used for strategy selection: high StdDev for trend-following LONG strategies, low StdDev for mean-reversion LONG strategies.

Base Entry Order (LONG) - High Volatility Trend Following

Trigger Type: Once per bar close
Bar TF: 1H
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

Additional Entry Orders (LONG)

Additional Entry 1: Volatility expansion confirmation
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 0.02

AND

First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Additional Entry 2: Low volatility mean reversion setup
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 35

Take Profit Orders (LONG)

Rule 1: Exit condition - Volatility contraction (trend exhaustion)
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Cross Below
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 2: Exit condition - High volatility warning
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 0.05

AND

First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 70

OR

Rule 3: Exit condition - Mean reversion target reached
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 0.015

Stop Loss Orders (LONG)

Rule 1: Stop loss - Extreme volatility spike
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 0.08

OR

Rule 2: Stop loss - Trend breakdown with volatility
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

AND

First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (5)
Timeframe: 1H

OR

Rule 3: Stop loss - Low volatility breakdown
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 0.01

🔴 SHORT STRATEGY (Context-Dependent)

Standard Deviation is equally effective for SHORT strategies when used for strategy selection: high StdDev for trend-following SHORT strategies, low StdDev for mean-reversion SHORT strategies.

Base Entry Order (SHORT) - High Volatility Trend Following

Trigger Type: Once per bar close
Bar TF: 1H
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

Additional Entry Orders (SHORT)

Additional Entry 1: Volatility expansion confirmation
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 0.02

AND

First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Additional Entry 2: Low volatility mean reversion setup
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 65

Take Profit Orders (SHORT)

Rule 1: Exit condition - Volatility contraction (trend exhaustion)
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Cross Below
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Rule 2: Exit condition - Oversold bounce warning
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 30

AND

First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (10)
Timeframe: 1H

OR

Rule 3: Exit condition - Mean reversion target reached
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 0.015

Stop Loss Orders (SHORT)

Rule 1: Stop loss - Extreme volatility spike
First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 0.08

OR

Rule 2: Stop loss - Trend reversal with volatility
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

AND

First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (5)
Timeframe: 1H

OR

Rule 3: Stop loss - Low volatility breakout
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

AND

First Condition: Standard Deviation (20, 1)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 0.01

Advanced Strategy Combinations

Volatility Regime Strategy Selection

Setup

Strategy Selection Based on Standard Deviation:

• High StdDev (>2x average): Trend-following strategies

• Medium StdDev (0.5-2x average): Balanced strategies

• Low StdDev (<0.5x average): Mean-reversion strategies

• Expanding StdDev: Prepare for breakouts/breakdowns

Execution

High Volatility: Trend-following with wider stops Low Volatility: Mean-reversion with tighter stops Expanding Volatility: Breakout strategies with volume confirmation

Multi-Timeframe Volatility Analysis

Setup Process:

1. Analyze Standard Deviation across multiple timeframes

2. Identify volatility regime on each timeframe

3. Select appropriate strategy for each timeframe

4. Execute when volatility patterns align

Execution:

• Base Order: Standard Deviation-based strategy selection

• Additional: Volatility confirmation across timeframes

• Take Profit: Volatility-based targets and exhaustion

• Stop Loss: Volatility-adjusted stops

Bollinger Band Width Strategy

Band Contraction

Setup: Standard Deviation contracting (bands narrowing) Signal: Low volatility before potential breakout Entry: Prepare for volatility expansion Target: Volatility expansion and trend development

Band Expansion

Setup: Standard Deviation expanding (bands widening) Signal: High volatility and trending conditions Entry: Trend-following strategies Target: Volatility contraction and mean reversion

Risk Management Guidelines

Volatility-Based Position Sizing

StdDev Level	Position Size	Risk Level	Strategy Type
Very Low (<0.5x avg)	Increased (125%)	Low	Mean reversion
Low (0.5-1x avg)	Standard (100%)	Normal	Balanced
High (1-2x avg)	Reduced (75%)	High	Trend following
Very High (>2x avg)	Minimal (50%)	Very High	Breakout only

Standard Deviation Reliability Factors

High Reliability

✅ Consistent StdDev patterns across timeframes ✅ Volume confirmation of volatility changes ✅ Clear volatility regime identification ✅ StdDev aligns with market conditions

Low Reliability

❌ Artificial volatility from news events ❌ Very short timeframes with noise ❌ Conflicting volatility signals across timeframes ❌ StdDev without price action confirmation

Best Practices

For High Volatility Periods

1. Trend following - Use trend-following strategies when StdDev is high

2. Wider stops - Increase stop-loss distances based on StdDev multiples

3. Reduced size - Decrease position sizes to manage higher risk

4. Volume confirmation - Ensure volume supports volatility moves

For Low Volatility Periods

1. Mean reversion - Use mean-reversion strategies when StdDev is low

2. Tighter stops - Use smaller stop-loss distances

3. Increased size - Can use larger position sizes due to lower risk

4. Breakout preparation - Prepare for potential volatility expansion

Common Mistakes to Avoid

• Ignoring volatility - Not adjusting strategies based on current StdDev

• Fixed parameters - Using fixed stops instead of volatility-adjusted stops

• Wrong strategy - Using trend-following in low volatility or mean-reversion in high volatility

• News events - Trading during artificial volatility spikes

Market Conditions Analysis

Market Type	LONG Strategy Effectiveness	SHORT Strategy Effectiveness
High StdDev Trending	🟢 High (trend following)	🟢 High (trend following)
Low StdDev Ranging	🟡 Medium (mean reversion)	🟡 Medium (mean reversion)
Expanding StdDev	🟢 High (breakout potential)	🟢 High (breakdown potential)
Contracting StdDev	🔴 Low (await expansion)	🔴 Low (await expansion)
Extreme StdDev	🔴 Low (high risk)	🔴 Low (high risk)

Related Indicators

Indicator	Relationship	Link
Bollinger Bands	Uses StdDev for band calculation	Bollinger Bands Upper
Average True Range	Alternative volatility measure	Average True Range
Normalized ATR	Percentage-based volatility	Normalized Average True Range
Volume	Confirms volatility moves	Volume

Conclusion

Standard Deviation is a fundamental volatility measurement tool that's essential for both LONG and SHORT strategies. Its primary value lies in strategy selection, risk management, and position sizing rather than directional signals.

Key Takeaways

• PRIMARY USE: Volatility measurement and strategy selection

• SECONDARY USE: Risk management and position sizing

• ALWAYS: Adjust strategies and position sizes based on current StdDev levels

• REMEMBER: StdDev measures volatility, not direction - use for strategy selection

Success with Standard Deviation requires understanding that it's primarily a risk management and strategy selection tool. Use it to identify the current volatility regime and select appropriate strategies: trend-following for high volatility, mean-reversion for low volatility.

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