Chaikin Volatility indicator: Another indicator developed by Marc Chaikin is the Chaikin Volatility indicator. It measures the spread or the difference between the high and low prices and measures the volatility accordingly. The Chaikin Volatility does not consider any price gaps that may form between the bars. Similar to the Chaikin oscillator, the Chaikin Volatility indicator is recommended to be used with the moving average or moving average envelopes.
According to the volatility principles, the growth in the Chaikin’s volatility indicator in the short term signals that the price is approaching a market bottom, represented by panic selling as volatility starts to decline. The Chaikin oscillator usually indicates market tops and bottoms by exhibiting sharp volatility just before the market tops or bottoms out which is then followed by low volatility. Similarly, a sharp decline in volatility is usually signaled by the Chaikin Volatility oscillator ahead of short term reversals or corrective moves.
The Chaikin volatility indicator comes with three settings which are the smoothing period, ROC and the smoothing type (exponential or simple moving average), all three of which can be easily customized