What is Berma Deviation Percent?
It is an indicator that measures price volatility as a percentage rather than points. The idea behind the “Berma Deviation Percent” is to create a relative indicator, based on the “Classical Standard Deviation”, that ranges between zero and one hundred percent.
The Indicator’s Formula.
The indicator formula can be explained through the following steps.
The first step is to find the highest peak and lowest trough that the standard deviation indicator reached during a specific time.
The second step is to find the difference between the peak and trough of the “Standard Deviation” during that past period. We will call this distance, the “Range”.
The third step is to find the difference between the current value of the “Standard Deviation” and the highest peak it reached during that period. We will call this distance, the “Change”.
All that remains to be done is to divide the “change” number by the “range” number, and we will arrive at the percentage of the standard deviation within the range of the past days.
The Similarity between the “Berma Deviation Percent” and the William’s R Percent.
Have you noticed, my friend, that the equation for the “Berma Deviation Percent” is very similar to the equation for the “Williams R Percent”. The difference between them is that the “Berma Deviation Percent” depends on the “standard deviation” while the “Williams R Percent” depends on the “closing price”.
Illustration of the “Berma Deviation Percent” Movement.
The “Berma Deviation Percent” indicator moves between zero and 100 percent.
When the indicator’s value drops to ten percent or less, this is evidence of increased price volatility, and the standard deviation of price movement has reached its peak compared to its value during the previous period.
Conversely, when the value of the “Berma Deviation Percent” indicator rises to ninety percent or higher, this is evidence of a decrease in price volatility, and the Standard Deviation indicator has reached low levels compared to the previous period.
The bottom line is that a high value of the “Berma Deviation Percent” indicator is evidence of low-price volatility, and conversely, a low value of the “Berma Deviation Percent” indicator is evidence of high-price volatility.
Why Do We Need Volatility Indicators That Measure in Percent Instead of Points?
When I studied the different indicators used to measure price volatility, I found that most of these indicators measure price volatility in points, so they cannot be used to compare price volatility between different markets. So, I developed this indicator to address this issue.
In the following example, we can see from the chart that the “Standard Deviation” of the Dow Jones is approximately four hundred dollars, while the “Standard Deviation” of the GBP/USD pair is approximately twenty-one cents.
Anyone who looks at the above numbers will say that the Dow Jones is more volatile than the GBP/USD pair.
But what if we replaced the “Standard Deviation” with the “Berma Deviation Percent”, which measures price volatility as a percentage?
We will find that the picture has been completely reversed. According to the reading of the “Berma Deviation Percent” indicator, the GBP/USD pair is considered more active than the Dow Jones.
In conclusion, having an indicator that measures price volatility in percentage form is important for comparing the price volatility of different markets.
How to Use the “Berma Deviation Percent”.
In this course, we do not rely on the “Berma Deviation Percent” directly in trading. However, we use it in the formation of another great indicator that is called the “Berma Bands”. Therefore, it was necessary to explain this formula independently, before starting to explain the “Berma Bands” indicator.
At The End.
With this, my friend, we have basically learned about the “Berma Deviation Percent”. Now, let us move on to the next topic.