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Synthetic VIX Indicator Guide for MT4/MT5

The Synthetic VIX Indicator is an effective tool for forex traders seeking to gauge market volatility and plan their trades in MT4. As the name suggests, it measures the synthetic volatility index. Then provides real-time data on promising and adverse market conditions. This makes Synthetic VIX one of the best market volatility tools in MT5 and a leading indicator in daily technical analysis. The indicator works on all timeframes and currency pairs. Also, it appears in a separate window below the main trading chart. Additionally, traders can customize the default settings to fit their personal preferences and trading strategies. With its versatility and accuracy, the Synthetic VIX Indicator is an essential resource for Tradingview investors of all levels.

Synthetic VIX Forex Indicator FAQ

What is Synthetic VIX indicator?

The Synthetic VIX is a forex indicator that measures the market’s expectation of volatility over a specified period. Typically the next n days. This technical computation is based on the prices of options contracts on the S&P 500 index, which reflect investors’ expectations of how much the market will fluctuate. As the VIX increases, so does the volatility expectation. Consequently, the trader’s bullish or bearish sentiment expands also. The Synthetic VIX Indicator is a forex tool that helps to monitor price action changes in order to calculate volatility levels. Which serves as a scale for determining price volatility. Initially developed to track the volatility level of the S&P 500 index, this indicator has since been updated to make it compatible with other financial assets. Such as Forex, crypto, and commodities.

Origins

Originally, the VIX indicator was designed to calculate volatility levels only for the stock market, specifically for the S&P 500 Index, Dow Jones Industrial Average, and NASDAQ Composite Index. However, the good news is that the VIX can be replicated and applied to other markets, such as the forex market or any other market, using a straightforward formula. This means that traders in different markets can use the VIX indicator as a tool to monitor volatility and make informed trading decisions. Because tracking volatility is crucial for making informed trading decisions for traders. The higher the volatility level, the higher the risk of trading, as sharp price moves are likely to occur. While some traders may intentionally trade high-volatility pairs, this is typically based on their specific strategy.

Indicator Formula

The Synthetic VIX Indicator is a tool that utilizes historical price data to estimate market volatility. It employs an n-period moving average to monitor changes in volatility. Here is the formula used by the indicator:

Synthetic VIX value = [{Highest(Close,n) – Low}/{Highest(Close,n)}]

To calculate the indicator reading, it first identifies the highest close price of the previous n bars and subtracts the low of the current bar. Next, it divides the result by the highest close price in the last n periods. The resulting value can be scaled by multiplying it by 100 if needed. The Synthetic VIX Indicator is commonly used by traders to monitor and assess market volatility levels, which can help them make more informed trading decisions.

How to trade with it ?

Fundamentally, investors use the synthetic VIX indicator to investigate traders’ fears and translate them into volatility. From one part, high readings reflect increased volatility levels. From another part, low readings mirror decreased volatility conditions. Yet, the synthetic VIX indicator does not provide buy & sell signals. It solely displays the current state of market volatility established on its price index computation. Now, let us discover some real trading examples using the synthetic volatility index indicator to better analyze market volatility.

Chart example 1

This EURGBP H4 chart presents a clear upward trend and stable volatility on the left side. However, this stability is disrupted by a sharp increase in volatility, indicated by the orange zone, which causes the price to fall below the moving average and changes the direction of the trend. This example illustrates the impact of volatility on market behavior and highlights the importance of monitoring it closely. By analyzing trends and volatility, investors can make informed decisions and adjust their strategies accordingly. Therefore, understanding the relationship between volatility and trend is crucial for successful trading. In short, the high-volatility area corresponded to a significant decrease in price.

Analyzing volatility with the indicator

Chart example 2

The same Euro and pound sterling graph demonstrates relatively stable volatility on both the left and right sides. However, in the middle section, there is a significant change in volatility that results in substantial price swings. Initially pushing the price upwards, then downwards. Such sudden changes in volatility can lead to uncertainty and challenges in predicting market behavior, emphasizing the importance of risk management in trading. By assessing the risks associated with changes in volatility, investors can make informed decisions and adjust their strategies accordingly to mitigate potential losses. Therefore, understanding the relationship between volatility and risk is critical for victorious trading. Note that news may give a momentum state of increased volatility. That is why you should accord importance to fundamentals before analyzing volatility with Synthetic VIX.

Uses of Synthetic VIX in volatility analysis

Download Synthetic VIX indicator for MT4

Synthetic VIX is an MT4 forex indicator that calculates the expansion or decline of volatility in MetaTrader 4. But, this non-directional measure has better be used in combination with other trend tools.

The Synthetic VIX Indicator is rooted in Larry Williams’ TASC articles “Fix the VIX”, and it captures the essence of Bernard Baruch’s famous statement that “markets fluctuate”. This indicator appears in a separate window that is positioned beneath the primary trading chart, and it is suitable for use across all timeframes and currency pairs. The default settings for the Synthetic VIX Indicator are customizable, and traders can adjust the settings and parameters to their taste. Below, we will examine these inputs more closely, starting with the Synthetic VIX period, which defines the time period for calculating the Synthetic VIX. The EURO, US Dollar graph beneath represents the synthetic volatility index. 

You can download Synthetic Vix Indicator for MT4 via Finansya APP.

Synthetic VIX MT4 indicator

Download Synthetic VIX indicator for MT5

The Synthetic VIX is a custom MT5 indicator for Metatrader 5 platforms. Yet, it is not a directional tool. Since forex traders employ it to determine the increase or decrease in volatility.

The Synthetic VIX Indicator is a concept that originates from Larry Williams’ TASC articles “Fix the VIX”. As Bernard Baruch famously stated, “Markets fluctuate,” and the Synthetic VIX embodies this idea. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), which was launched in 1993, is based on the Synthetic VIX concept and has gained popularity as a tool for assessing market risk. The Volatility Index utilizes implied volatility from stock index options to reflect traders’ expectations of market volatility over the next 20 days.  You can download Synthetic Vix Indicator for MT5 via Finansya APP.

Below is an illustration of the synthetic VIX MT5 indicator on the XAGUSD chart:

MT5 Synthetic VIX indicator

Conclusion

The Synthetic VIX indicator is a useful addition to any trading collection. And can enhance the chances of success in forex trading. However, it is important to maintain realistic expectations. Also, to understand that, like any other technical analysis tool, it is not foolproof and may provide false signals at times. The performance of the indicator is also influenced by market conditions. Professional traders recommend developing a trading system based on the indicator. And keep in mind that there are other directional forex MT4 indicators available for free download and for use with Synthetic VIX.

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