Lux Volatility

The Lux Volatility is a volatility indicator that aims to measure the current market volatility while being in a fixed [0,100] range, thus making it easier to interpret.

Interpretation

A higher value of the Lux Volatility indicator will be associated with a more volatile market, but it is easier to interpret the indicator according to the zone where it is currently located.

Low volatility is associated with the indicator being below 50, while high volatility is associated with the indicator being above 50.

Values over 50 can indicates trending markets, while values under 50 could indicate ranging markets

It is possible to find out when volatility is increasing or decreasing by analyzing when the indicator goes above the lower level and under the upper level, when the indicator cross over the lower level we can expect the market to become more volatile, the user should be cautious, and when the indicator cross under the upper level, we can expect volatility to decrease.

Volatility is inherently associated with risk since it relates to the degree of variations in the price, traders with less risk aversion can use the volatility metric in order to size their position accordingly.