Standard Deviation

Parameters: period = 20 (5–200)

Overview

Standard Deviation is the cornerstone of volatility measurement in technical analysis, providing traders with mathematically precise insights into market risk and price variability. As the foundation of Bollinger Bands and numerous other indicators, it quantifies price dispersion around the mean - with approximately 68% of prices falling within one standard deviation and 95% within two standard deviations, giving traders a reliable framework for understanding probable price ranges.

What makes Standard Deviation invaluable for 2025 trading is its dynamic adaptation to market conditions. According to John Bollinger, periods of low volatility are often followed by periods of high volatility - this principle makes standard deviation contraction one of the most reliable predictors of impending breakouts. The longer the squeeze (low standard deviation period), the more potent the subsequent price movement tends to be, providing traders with high-probability setups across all markets.

Interpretation & Trading Signals

Bollinger Band Squeeze Strategy:

  • Valid Squeeze Setup: Band Width reaches 6-month low - significant move imminent
  • Breakout Trading: Enter when price breaks bands after squeeze period
  • Head Fake Warning: Initial move may reverse - wait for confirmation
  • Volatility Cycles: Low volatility begets high volatility predictably

Risk Management Applications (2025):

  • Position Sizing: Smaller positions during high StdDev, larger during low StdDev
  • Stop Placement: Add "no man's land" width (+1 to -1 SD) to band for stops
  • Volatility-Based Stops: Use StdDev multiples to avoid premature exits
  • Target Projection: Set profit targets at 2-3 StdDev from entry

Trading Framework:

  • Day Trading: Tighter settings (10 period, 1.5 SD) for quick signals
  • Swing Trading: Standard settings (20 period, 2 SD) for reliable bands
  • Position Trading: Wider parameters (50 period, 2.5 SD) for major moves
  • Mean Reversion: Trade back to mean when price touches outer bands

Example Usage

Code examples will be available once the Rust implementation is complete.

Performance Analysis

Related Indicators

High-Low Correlation

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Kurtosis

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Linear Regression Angle

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Linear Regression Intercept

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Linear Regression Slope

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Mean Absolute Deviation

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