Traders have come to appreciate a number of signals involved in interpreting Chaikin?s Volatility. One assumption is that increased volatility accompanies market tops as investors get euphoric or indecisive, and the other is that decreased volatility normally accompanies the latter stages of a market bottom as investors get bored.

Mr. Chaikin interprets signals in the following way:
- a panic sell-off and a market bottom are indicated by an increase in the value of Chaikin?s Volatility indicator in a relatively short period of time.
- a market top and a mature bull market are indicated when the value of Chaikin?s indicator decreases over a long period of time.

However, Mr. Chaikin warns that complete reliance on only one indicator may prove costly, and that traders ought to use a Moving Average - Exponential penetration or a trading band system to confirm this or any other indicator.

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

Formula: