How does standard deviation help identify real trading targets

Many traders use standard deviation, but few truly understand the mechanics of this tool. Let’s figure out how this indicator works in practice and how to apply it for the best results.

What Standard Deviation Actually Measures

Standard deviation (STDV) is a volatility indicator that determines how far the price can deviate from its average value. When you understand this principle, you can predict where the price is most likely to find resistance or support.

In practice, this means the following: if the price closes above 2.5 standard deviations, the candle indicates an extreme move, which often precedes a double expansion. This signals increased volatility and a possible continuation of the trend toward the 4 STDV mark.

Practical Trading Applications

To effectively work with this tool, it is recommended to:

Set Trading Goals: For initial price movement expansion, potential targets are located in the range of -2 to -2.5 STDV, with maximum recovery reaching -4 STDV. These levels serve as natural points for entry and exit.

Identify Liquidity Zones: PD arrays help establish areas where buyers and sellers can buy positions profitably. Look for these zones precisely at the 2-2.5 and 4 standard deviation marks — they often become target levels for profit-taking.

Combine with Analysis Methods: Use Fibonacci retracement from the maximum to the minimum (or vice versa) to confirm trading targets set through standard deviation. Combining strategies increases forecast accuracy.

Recognizing Manipulation Signals

Watch for short-term highs and lows that may indicate price manipulation. Breakouts through STDV levels are often accompanied by significant moves, so they deserve special attention.

Key Reinforcements

Remember, 4 standard deviations is a rare target indicating a low-probability price move. However, when such a move occurs, it often signifies the end of a cycle or the start of a new one, so it should be taken seriously.

Use standard deviation as a basis for deep market understanding, not as the sole signal. Combine it with other tools — and your trading will improve significantly.