Developed by Chaikin, Volatility indicator is the difference between two moving averages of a volume weighted accumulation-distribution line. By comparing the spread between a security's high and low prices, it considers volatility as a widening of the range between the high and the low price.

There are two ways to interpret this indicator:

1. Market tops are generally accompanied by increased volatility (as investors get nervous and indecisive) and that the latter stages of a market bottom are generally accompanied by decreased volatility (as investors get bored).

2. An increase in the indicator over a relatively short time period indicates that a bottom is near (e.g., a panic sell-off) and that a decrease in volatility over a longer time period indicates an approaching top (e.g., a mature bull market).

As with almost all experienced investors, Mr. Chaikin recommends that you do not rely on any one indicator. He suggests using a moving average penetration or trading band system to confirm this (or any) indicator.