Definition. A measure of how spread out data is around its mean. In finance it's often used as a measure of volatility.
How it works
The larger the standard deviation, the further values stray from the mean. With a roughly normal distribution, about 68% of observations fall within one standard deviation of the mean and about 95% within two.
Example
VWAP bands and Bollinger Bands use the standard deviation to show how far price has moved from the average.
What to watch out for
Market price changes have “fat tails”: extreme moves happen more often than the normal distribution predicts.
This is the session volume profile with VWAP in the Hetman Terminal (Battle Map of the Day). Screenshot from the Hetman Index (IHA) – a training instrument, simulated data. See all the Hetman Terminal tools →
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You'll find the full explanation with graphics, examples and exercises in the 📖 Order flow encyclopedia space, and its use in the live market in the 🔴 Live Room. Both are available to Club members (in Polish).
