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. Other than the below description, you may also review our Relative Ranges Indicator Spotlight (with video).
Indicator Description
One may use the Relative Ranges indicator to address changes in volatility between the overnight, European and US regular sessions. For example, if a standard volatility indicator (such as the 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, compare with the overnight session data. This session has comparatively little movement. Conversely, comparing the European and US sessions with the overnight will always show a fall-off in volatility.
Analyzing Relative Ranges
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, you’ll compare the current overnight ranges with the N days overnight sessions. The volatility of the current European session is compared with the N days European sessions. Finally, one may compare the current regular session 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. This is useful for days and times with regular news releases, such as the weekly petroleum / natural gas reports. You’ll then compare the average volatility 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. One may use this information to run breakout strategies when cumulated relative ranges are above average. Likewise, you may run countertrend strategies when the cumulated relative ranges are below average.
Other Library Indicators
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 Filters, Trend Analysis and Momentum Oscillators such as the Adaptive Laguerre, ADX, Know 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. You may for example review the premium Session Pivots package and the Current Day Median. Finally, a Relative Volume indicator, built on the same framework as the Relative Ranges indicator, was discussed here.
The indicator is available for NinjaTrader 8.
