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The Volatility Stop Indictor, as with many indicators, has as its principle function the definition of the current trend. Note that when prices are above the Uptrend Volatility Line (UVL) the trend as defined by this indicator is considered to be up. When the prices are below the Down Volatility Line (DVL) this indicator is considered to be down. The UVL should be plotted as blue as it defines an uptrend. The DVL should be plotted as red as it defines a downtrend.

The market changes from an uptrend to a downtrend when a bar CLOSES below the plotted UVL. Note that the low of the bar can be plotted below the UVL without initiating a trend reversal to down.

The market changes from an downtrend to a uptrend when a bar CLOSES above the plotted DVL. Note that the high of the bar can be plotted above the DVL without initiating a trend reversal to up.

The unique trend defining function of this indicator is its ability to give the market additional flexibility when an increase in volatility occurs. While one may obtain several definitions of volatility, for the purposes of this indicator we will consider volatility to be higher when the range, or distance between the high and low of a bar, increases for each bar.

IMPORTANT: Note that as the average volatility of the price bars increases the DVL or UVL reversal lines can actually move farther away from the price bars thus giving the market time and space to work itself through a volatile time period without subjecting the defined trend to successive, frequent changes which can occur during periods of increased activity. If the increased activity is indeed indicative os a trend change the change will be confirmed when the activity is of sufficient strength to actually break the trend line.