Relative Ranges

Relative Volume indicator for NT8

The Relative Ranges indicator uses the same architecture as the Relative Volume indicator, but the logic is applied to ranges. It measures the range of a fixed period bar against the average range over the same period during the preceding n days and can be used to assess average volatility.

Indicator Description

The Relative Ranges indicator can be used to address changes in volatility between the overnight, European and US regular sessions.

If standard volatility indicator (ATR) is used to analyze average ranges, a steady increase will be seen during the European and US trading sessions. This is because the data in the lookback period, i.e. the European/US sessions, are compared to the overnight session. This session has comparatively little movement. Conversely, comparing the European and US sessions with the overnight will always show a fall-off in volatility.

The Relative Ranges indicator solves this issue comparing the average ranges at a specific time of day. Specifically, it compares the current session with the average volatility of the past N days. In other words, the current overnight ranges are compared with the N days overnight sessions. The volatility of the current European session is compared with the N days European sessions. Finally, the current regular session is compared with the N days regular sessions.

The Relative Ranges indicator furthermore allows you to compare the average volatility at a specific time and day of the week. Days and times that have regular news releases, for example weekly petroleum and natural gas reports, the range is compared with the average volatility calculated for the same day/time of the week over the N preceding weeks.

Identify increasing / decreasing volatility can help in locate breakout and reversal patterns together with the Relative Volume indicator. This information can be used to run breakout strategies when cumulated relative ranges are above average and countertrend strategies when cumulated relative ranges are low.

Using the Relative Ranges indicator

For ideas on how to use the indicator you may consider reviewing our posts on the TDI indicator or the Squeeze momentum setup. Furthermore, the Relative Ranges indicator may be used in combination with Trend FiltersTrend Analysis and Momentum Oscillators such as the Adaptive LaguerreADXKnow Sure Thing or the Heikin Ashi candles for determining market trends. Support / resistance indicators are located the Session Tools category and we have a post on Fibonacci retracement levels.

The indicator is available for NinjaTrader 8 and was discussed in this blog post. The Relative Volume indicator is also available from our Library which was discussed here.