Volatility indicator detects and protects

A great example of the Quantum volatility indicator in action yesterday in the eur/aud currency pair. The indicator was triggered on unexpected comments from ECB member Nowotny – noted hawk – who suggested the ECB’s current program of QE was likely to come to an end sooner rather than later. Ahead of these comments eur/aud was looking to continue its bearish tone.

However, on the comments hitting the newswires sentiment in the euro changed and euro pairs soared as volatility hit the market. This indicator triggers in real time so, as traders, we know instantly something is afoot.

What then generally happens is that on completion of the volatility candle, price action retraces to within the spread of the candle as the sting is taken out of the move. But the subsequent candle is also interesting as it is hanging man on high volume, which is almost always a precursor to a reversal in trend and sentiment. And this is exactly what happened as the ECB took the unusual step of rebutting Nowotny’s remarks.