Standard Deviation

Standard deviation is a statistical measure of volatility. This technical analysis tool measures the difference between the actual value (closing price) and the average value (the average closing price) of a security. The larger the dispersion, or difference between the values, the higher the Standard Deviation, the further apart the bands, and the greater the volatility. The smaller the standard deviation, the closer the bands, and the lower the dispersion and volatility.

Calculation

Where:

SMA = Simple Moving Average
n = Number of time periods

Standard Deviation is derived by calculating an n-period simple moving average of the data item (for example, the closing price or an indicator) summing the squares of the difference between the data item and its moving average over each of the preceding n-time periods, dividing this sum by n, and then calculating the square root of this result.

Sample Chart

The strategies described in this article are for information purposes only, and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security before making an investment decision. Securities are subject to market fluctuation and may lose value.