Chaikin Volatility (CVI)

Name Type Prerequisite Use Cases
Chaikin Volatility (CV) Volatility EMA Identifying volatility peaks that lead to reversals.

Definition

Chaikin Volatility (CVI) is an indicator that calculates the volatility of a security by measuring the percent change in the high-low range over a specified period. It was developed by Marc Chaikin. It is different from Average True Range (ATR) because it does not account for gaps.

Mathematical Equation

  1. Calculate the High-Low range for each period: \(HL = High - Low\)

  2. Calculate an \(N\)-period EMA of the HL range: \(EMA_{HL}\)

  3. Calculate the percent change of the EMA over \(M\) periods (usually 10):

\[ CVI = \frac{EMA_{HL}(t) - EMA_{HL}(t-M)}{EMA_{HL}(t-M)} \times 100 \]

Special cases

  • Maximum possible value: Unbounded
  • Minimum possible value: Unbounded
  • Behavior: Moves independently, measuring the expansion/contraction of the spread between high and low prices.

Visualization

Chaikin Volatility

Trading Significance

  1. Volatility Expansion/Contraction: High values indicate high volatility (expansion), while low values indicate low volatility (contraction).

  2. Tops and Bottoms: Sharp increases in volatility often coincide with market tops or bottoms. A rapid decline in volatility may signal a consolidation period.