Volatility Histogram

Candle Size vs Volume Ratios — Interpretation & Trading Guide
1. Understanding the Ratios
Ratio 1 (Range/Volume): top histogram
Represents the candle's price range divided by the volume.
High values mean large price movement with relatively low volume.
Typically signals less conviction, possible consolidation or fake moves.
Ratio 2 (Volume/Range): bottom histogram
Represents the volume divided by the candle range.
High values mean high volume for the given price movement.
Usually indicates strong market participation and trend strength.
Negative sign often used in plots to separate it visually from Ratio 1.
2. Role of Moving Averages (MAs)
Moving averages smooth the ratios to reduce noise and highlight trend changes.
MA of Ratio 2 often leads the market movement, especially in the morning session.
MA of Ratio 1 tends to lag, confirming trend direction later in the day.
The divergence between the MAs (distance between them) indicates increasing
momentum.
Flat or converging MAs signal consolidation or low market conviction.
3. Interpreting the Relationship and Market Behavior
When Ratio 2 MA moves first and starts diverging from Ratio 1 MA, expect a
potential initiation of trend.
Ratio 1 rising while Ratio 2 remains low often signals consolidation or indecision.
High Ratio 1 with low volume suggests fake breakouts or traps.
High Ratio 2 with stable or rising price indicates strong trend and volume support.
The spread between MAs can be used as a momentum gauge.
Outside main trading hours, ratios oscillate and MAs remain flat, reflecting low
liquidity.
4. Practical Trading Tips
Use early movement in Ratio 2 MA (e.g., 8:15–9:00 AM) as a signal for upcoming
volatility.
Confirm trends later with Ratio 1 MA movement (usually 10:30–11:00 AM).
Watch for periods of high volume but flat ratios as signs of
accumulation/absorption.
Beware of high Ratio 1 values indicating potential consolidation or fake moves.
Use the spread between MAs to assess trend strength and decide entry or exit.
Combine this oscillator with price action and volume profile for best results.
5. Summary
Ratio 1 and Ratio 2 ratios combined with their moving averages offer a powerful
way to interpret price and volume interplay. Their leading-lagging behavior helps
traders anticipate volatility and confirm trends. Proper normalization and visual
scaling are essential for clear interpretation. Use these tools together to improve
timing and reduce false signals in your trading