The Standard Deviation does not generate trading signals in the traditional sense, since it is blind to market direction. However, it may be used as part of a trading strategy that depends on market volatility. Examining bar charts shows that periods of low volatility tend to precede strong market moves. Hence, you may want to use low readings in this tool as signals to initiate breakout strategies. Note how often declining volatility readings during trends indicate stalls or trend reversals. Therefore, you may want to consider using such declining readings as part of an exit or reversal strategy.

Standard Deviation is a statistical measurement of volatility. It is derived by calculating an n-time period Simple Moving Average of the data item; summing the squares of the difference between the data item and its Moving Average over each of the preceding n-time periods; dividing this sum by n; and calculating the square root of this result.

This indicator is described in more details in the Steve Achelis' book "Technical Analysis from A to Z".

Formula: