VIDYA (Standard Deviation)

["Walter Lake" <wlake@xxxxxxxxx>]

For those of you who don't have access to Chande and Kroll's "The New
Technical Trader", the following are some of my rough notes on their VIDYA
chapter, starting on page 51.

Volatility Index = k

k = sigma(x-days)/sigma(reference)

sigma(x-days) {is the volatility measure = standard deviation of closing
prices over x days}

sigma(reference) {makes it an index = the historical value of standard
deviation over x days}


There are three types of sigma reference values that can be choosen from:

1.  20 MA of sigma

2.  average value of sigma over a period 5 times as long as the period used
to calculate the standard deviation in sigma(x-days)

3.  find min and max value of standard deviation over x days, then choose an
arbitrary value = to 1/4 or 1/5 of max value


The VIDYA formula given on page 52 is:

VIDYA = alpha * k * Close{today} + (1 - alpha * k) * Close {yesterday}

note: that when Chande actually uses the formula he writes it as

VIDYA = (alpha * k) * Close{today} + (1 - alpha * k) * Close {yesterday}


Note the similiarity to the Metastock version of VIDYA(CMO):

(SC*AbsCMO*Close)+(1-(SC*AbsCMO))*PREV) which is part of the main formula

VIDYA:=If(Cum(1)<=(Length+1),C,(SC*AbsCMO*Close)+(1-(SC*AbsCMO))*PREV)


Also note the similiarity to Bernd's analysis of the main formulas in
Kaufman's "Adaptive Moving Average":

AMA:=If(Cum(1)=periods+1,Ref(CLOSE,-1)+constant*(CLOSE-Ref(CLOSE,-1)),PREV+c
onstant*(CLOSE-PREV));

"The main portion of the formula is "PREV+constant*(close-PREV)": You take
the difference between today's close and yesterdays value of the AMA,
multiply it by Constant and add it to yesterday's AMA (the difference could
be negative)."

"In a trending market, You will take about 44% of the difference between
today's close and PREV, in an oscillating market 0.4%. You have to provide a
starting value for AMA (to be used as PREV) hence the term
"Ref(CLOSE,-1)+constant*(CLOSE-Ref(CLOSE,-1))", which is computed after
periods+1 days. "


Any additions or extensions would be appreciated.


Will post rough notes on alpha later:

alpha = constant  = (2/(N+1))

or as it is given in the Metastock version of VIDYA(CMO)

SC {Scaled Constant} :=2/(Smooth+1)

Best Wishes and good trading to everyone

Walter Lake