Standard Deviation in Trading: Complete Explanation and Practical Application

What does standard deviation actually mean? 🔍

Most traders do not fully understand the concept of standard deviation, although it is a powerful tool for analyzing market volatility. Standard deviation measures how far the price movement deviates from its average value, allowing for a quantitative assessment of the risk and variability of an asset's price.

Standard Deviation Projections as Trading Benchmarks

Standard deviation projections (STDV) are a statistical tool that helps to determine potential price targets by measuring the volatility of price movement.

• For the initial expansion of the movement, potential targets are usually in the range of -2 to -2.5 STDV
• Maximum recovery can reach the level of -4 STDV
• Liquidity zones are often formed at levels of 2-2.5 and 4 standard deviations, making them optimal points for profit taking.

When tracking price movement, pay attention to short-term highs/lows and breakouts – these are signs of potential price manipulation. To confirm trading targets, it is advisable to use Fibonacci retracement from high to low or vice versa.

Practical Settings and Tips for Traders

Optimal indicator settings:

• Determine the PD arrays ( price distribution ) for identifying zones where buyers and sellers can profit.
• Set clear targets at levels 2-2.5 standard deviations for more accurate entries and exits.
• Remember that a target at 4 standard deviations is a statistically rare event, indicating an extreme price movement.

Key advice for analysis:

Closing the candle above 2.5 standard deviations (STD) with the formation of a full candle body often signals the possibility of a double price expansion, which may reach 4 STD. This indicates increased volatility and a potential continuation of the trend in the same direction.

Disclaimer: The information provided contains the opinions of third parties and is not financial advice. The content may contain sponsored material.