Volatility Based Momentum Indicator for ThinkorSwim


Staff member
The Volatility Based Momentum (VBM) indicator is a variation on the rate-of-change ( ROC ) indicator. Instead of expressing momentum in a percentage gain or loss, VBM normalizes momentum using the historical volatility of the underlying security...The calculation for a volatility based momentum (VBM) indicator is very similar to ROC , but divides by the security’s historical volatility instead. The average true range indicator (ATR) is used to compute historical volatility.

For example, on a daily chart , VBM(22,65) calculates how many MoV price has increased or decreased over the last 22 trading days (approximately one calendar month). The second parameter is the number of periods to use with the ATR indicator to normalize the momentum in terms of volatility.

For more details, there is an article further describing VBM and its applicability versus ROC.


thinkScript Code

declare lower;

input rocPeriod = 22;
input atrPeriod = 65;

def rateOfChange = close[0] - close[rocPeriod];
def normalizationATR = atr(atrPeriod)[0];
def volatilityBasedMomentum = rateOfChange / normalizationATR;

plot VBM = volatilityBasedMomentum;
plot ZeroLine = 0;


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I looked at this request, after adding the snippet that @BenTen posted earlier, the resulting display does look a bit squished. I was thinking that perhaps it might be a better idea to transform this into an upper study so that the arrows can be clearly marked on the chart. However perhaps this might not be a perfect study to use for buy/sell as we see the convergence of the so-called "buy"/"sell" arrows that make the signal not clear and confusing. However if the requester really wishes to see those arrows, here is version 1.1 based on @BenTen original study

# Volatility Based Momentum
# tomsk
# 1.12.2020

# V1.0 - 12.03.2019 - BenTen - Initial release of Volatility Based Momentum study (Lower Study)
# V1.1 - 01.12.2020 - tomsk  - Converted to upper study so that intended signals can be displayed

input rocPeriod = 22;
input atrPeriod = 65;

def rateOfChange = close[0] - close[rocPeriod];
def normalizationATR = atr(atrPeriod)[0];
def volatilityBasedMomentum = rateOfChange / normalizationATR;
def VBM = volatilityBasedMomentum;

plot bull = if VBM crosses above 0 then low * 0.996  else Double.NaN;
plot bear = if VBM crosses below 0 then high * 1.004 else Double.NaN;


# End Volatility Based Momentum
thanks @tomsk - Quick testing on lower time frames, a value of 15, 39 seems to be a good optimization for lower time frame intraday scalps (e.g. 1 to 3 min TF).

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