| Standard Deviation
The calculation of standard deviation will vary depending on the
method of implementation. The statistician has discretion to
specify the pattern of distribution and "degrees of freedom" for
the underlying data. US futures and futures options calculations have
typically used standard deviation calculations based on a normal data
distribution and zero degrees of freedom. This gives tight
correlation between implied and historical volatility, and will
produce narrower support and resistance channels for futures
studies which use standard deviation and variance in their formulas.
Barchart.com uses the sample standard deviation formula with zero degrees of freedom.
Variations on this formula will use (number of data points -1) in step 4.below.
- 1. Calculate the average value for the underlying data points.
- 2. Calculate the difference between the average value and each data point.
- 3. Square the differences from step 2 above and add them up.
- 4. Divide the total from step 3 by the number of data points.
- 5. Take the square root of the result from step 4.
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