by Asack55 » Fri Jun 24, 2016 8:31 am
To get a really clear view of how this works you need to read the book Volatility illuminated. Essentially it is two normalized bollinger bands, readings below .5 tells us that the market is compressed and that there may be a strong move soon .9 tells us that the move is pushing full throttle. The indicator is not directional, it is only concerned with volatility. Take a look at your chart on the daily and mark places where the short term and long term compression are below .5 and what happens as price moves above .5 to get an idea of how this works.