Visualizing volatility gives us an impressive idea about the nature of the ongoing phase (Sideways, Volatile, Trending) and accordingly one can justify how to position in the market. Here is the Amibroker AFL code color-coded with different volatile phases to identify various market phases
Classification of ADX Volatile Market Phases
Low Volatile Phase : Generally ADX below 20 are referred to low volatile phase – generally price action is slow and steady on the uptrending as well during the downtrending phase. Most of the low volatile sideways price action happens to be in this band. Very less excited market participants here because most of the dull boring sideways price action happens.
Volatility Pick Up Phase / Volatility Cool of Phase : Sideways to an uptrend or sideways to downtrend is the nature of this phase. Markets might be preparing for the start of the trend or a possible continuation of the previous sideways mode. Generally, ADX trades between 20-30 during this phase. Mild trading interest from the market participants is seen in this zone.
Strong Volatility Phase: Increasing ADX value with ADX range between 30-40 suggests strong volatility. If markets are trading sideways then extreme jitters are possible and if the markets are trading in a trending mode then faster trendiness is possible during this phase. And the markets experiences an increase in volatility day by day. Exited market participants as the intensity of the volatility continue to rise
Weaker Volatility Phase: Decreasing ADX value with ADX range between 30-40 suggests weaker volatility. Volatility is getting weaker at this market phase. And the volatile characteristics are very similar to strong volatility phase but the intensity of the volatility gets reduced day by day. Though volatility decreases day by day it maintains the enthusiasm of the market participants even in sideways markets.
Extreme Volatility/Volatility Reversal Phase: ADX above 40 levels indicates the trading excitement phase which attracts more trading participants and the intraday volatility reaches the extreme. At times these market phases are dangerous as end of this phase is often market experience trend reversals.
Colored ADX Candles – Amibroker AFL Code
Colored ADX Histogram Bars – Amibroker AFL code