The Catapult Indicator — Innovative Trading Techniques
Presenting the Volatility-Based Catapult Indicator in Python
Just like a catapult, this technical indicator is based on three systems which deal with Volatility (Acting as the fulcrum), Momentum (Acting as a payload propeller, and a Directional Filter (Acting as the support). The aim is to get a signal that predicts an acceleration of volatility based on previous patterns as well as the direction following this volatility. Therefore, we are aiming to answer an important question, when will the market move? and where? Surely, no answer is perfect, but this indicator has shown better results than other classical indicators.
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The Base Part: Volatility
For the volatility part, the Catapult uses the 21-period Relative Volatility Index to predict the big moves.
There are many ways to measure volatility such as the Average True Range, the Mean Absolute Deviation, and the Standard Deviation. We will use Standard Deviation to create the Relative Volatility Index.
The most basic type of volatility is the Standard Deviation. It is one of the pillars of descriptive statistics and an important element in some technical indicators such as the famous Bollinger Bands. But first let us define what Variance is before we find the Standard Deviation.
Variance is the squared deviations from the mean (a dispersion measure), we take the square deviations so as to force the distance from the…