VEI - Volatility Expansion Index

Coder: Prabuddha-Peramuna
Date: Dec. 2025
Links: |TradingView|MT4|MT5|Reddit|

Most traders think a market is “stable” when price looks smooth. In reality, stability has nothing to do with how price looks it’s a volatility pattern, not a price pattern.
Here’s the simple mechanism my algos use to detect when the market is shifting from stable → unstable long before most traders notice.

The Core Idea: Compare Fast Volatility vs. Slow Volatility

I calculate two ATRs:

• ATR(short) → fast volatility (current reactions)

• ATR(long) → baseline volatility (normal behavior)

Then I compare them:
VEI = ATR(short) / ATR****(long)

Volatility Expansion Index
It’s shockingly simple but it reveals the hidden character of the market.

How to Read VEI (The Three Volatility States)
Most indicators try to predict direction. VEI does something more important:
It tells you whether the environment is favorable for your strategy.
Here’s how it behaves:
VEI < 1.0 → Stable / Normal

• Structure clean

• Pullbacks respected

• Trend setups behave well

This is where most systematic strategies perform best.

VEI > 1.2 → Volatility Expansion (Unstable)
Short-term volatility is 20% higher than the market’s normal baseline.
This is where you see:

• Trends becoming noisy

• Fakeouts and broken structure

• Stops getting hit more often

• Random wicks and slippage

• Breakouts failing

This is the zone where undisciplined traders lose money fast.
When VEI pushes above 1.2, my systems automatically:

• Reduce position size

• Tighten or skip entries

• Avoid trend continuations

Volatility shifts before direction shifts and VEI catches it early.

VEI < 1.0 and Decreasing → Controlled & Structured

This is the most cooperative market condition:

• Volatility contracting

• Trends orderly

• Pullbacks symmetric

• Easier trade management

If you’re a trend or pullback trader, this regime is gold.

What VEI Is (and Isn’t)
VEI IS

• A market stability filter

• A classifier for stable vs unstable regimes

• A risk-management tool

• A way to know when conditions are favorable for your strategy

VEI IS NOT

• A buy/sell signal

• A directional tool

• A predictor

VEI doesn’t tell you where to enter. It tells you whether entering makes sense in the first place.

Best Settings for VEI

After testing across Forex, Crypto, Indices, and Futures, these are the most reliable universal settings:

• ATR Short = 10 (captures current behavior)

• ATR Long = 50 (captures market’s baseline state)

This contrast gives you a clean view of volatility regime shifts without overreacting to noise.

How You Can Use VEI (No Algo Required)

• Add ATR(10) and ATR(50) to your chart

• Create the ratio: VEI = ATR(short) ÷ ATR(long)

• Apply this simple rule:

VEI > 1.2 → trade smaller or skip setups
VEI < 1.0 → stable environment, trend setups cleaner

This one filter alone can remove a shocking number of unnecessary losses.

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