Traders’ Tips by Technical Analysis, Inc.
• TRADESTATION: IMPLIED VOLATILITY AND VOLUME
Scott Castleman’s article in this issue, “Using Implied
Volatility And Volume,” describes a market-adaptive channel
breakout system in which the channel lookback period is a
function of implied volatility and volume. The core strategy’s
EasyLanguage code can be found in the sidebar of the article
We have elaborated on Castleman’s code by creating two
new indicators. The first displays the “LookBack” calculations
producing his trading “thresholds.” The second plots the
thresholds themselves. We have named them “IVV Lookback”
and IVV Thresholds.”
The IVV Thresholds indicator is fairly straightforward,
looking something like a Bollinger Band or Keltner channel.
The IVV LookBack is probably most useful as an aid for
understanding how the implied volatility and volume scheme
works. The thresholds are based on a lookback window of
variable length (displayed as a magenta line; see Figure 1).
The length is a function of the VIX range (cyan line) and data1
volume range (yellow line). The higher the VIX and volume
range, the shorter the lookback for determining the breakout