Every forex trader prefers a trending market with strong volatility. High volatility often leads to larger price movements, making it easier to capture profitable trades while avoiding the false signals commonly found in choppy or sideways markets. Because of this, traders rely on technical indicators that perform well under volatile and trending conditions. One of the best indicators for this purpose is the Volatility Quality Indicator.
The Volatility Quality Indicator uses the percentage of the Average True Range (%ATR) to filter market noise and improve the quality of buy and sell signals. This makes it effective for identifying trend strength and evaluating potential entries.
Originally developed by Thomas Stridsman in his work on technical analysis, the indicator combines two averages:
Weighted Moving Average (WMA) of OHLC values
Smoothed Moving Average (SMMA)
These calculations produce highly responsive volatility readings.
When applied to the EUR/AUD H4 chart (as in the example), the indicator turns green when the market becomes bullish and continues rising as the uptrend strengthens. When the market shifts bearish, the indicator flips to red, moving downward as the downtrend progresses. This color-change mechanism makes the Volatility Quality Indicator excellent for trend-following strategies.
The indicator is suitable for range traders, breakout traders, and trend traders.
In a ranging market, the indicator can be used:
As a standalone entry/exit tool
As confirmation when price reaches support or resistance
For example, on the EUR/AUD H4 chart:
Support is found near 1.54270
Resistance is found near 1.56242
A long position can be taken when:
Price reaches the support zone
The Volatility Quality Indicator changes from red to green
Upward arrows on the indicator line and the corresponding buy alert on the chart confirm the signal. The trade may be closed when price approaches resistance and the indicator flips green to red.
A short position can be taken when:
Price reaches the resistance zone
The indicator changes from green to red
Downward arrows and corresponding sell alerts validate the signal. The trade may be closed when price returns to support and the indicator turns green again.
The Volatility Quality Indicator provides a wide range of advantages for traders. It performs best in markets with strong volatility and is especially useful during major economic news events. The indicator works across all timeframes—monthly, weekly, daily, hourly, and even minutes—making it suitable for swing traders, intraday traders, day traders, and scalpers alike.
Published:
Nov 26, 2025 22:49 PM
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