VEI - Volatility Expansion Index

Guide to the Volatility Expansion Index (VEI)

The Stability Filter Every Trader Should Use

Most traders obsess over entries, patterns, and direction. They look for the next perfect breakout or the cleanest trend.
But before any of that matters, there is a more fundamental question that determines whether your strategy has a fighting chance:

“Is the market stable enough for your strategy to work right now?”

A stable environment produces smooth trends and clean pullbacks.An unstable one creates whipsaws, volatility spikes, failed breakouts, and unexpected reversals.

The Volatility Expansion Index (VEI) helps you identify these environments instantly.It doesn’t predict the next move it tells you whether the market is in a condition where your strategy can perform well.

What is the Volatility Expansion Index (VEI)?

The Volatility Expansion Index (VEI) is a simple but powerful metric that reveals the character of current market volatility.

It compares fast volatility to slow volatility:

VEI = ATR(short) / ATR(long)

Where:

• ATR(short) = recent volatility (fast reactions, current conditions)
  
• ATR(long) = baseline volatility (the market’s “normal state”)
  

A high ATR alone doesn’t tell you if volatility is normal or abnormal.VEI shows whether volatility is expanding beyond its historical baseline, which is a critical variable for strategy performance.

How to Read the VEI: Three Market States

VEI makes market conditions ridiculously simple to read.It gives you three volatility regimes, each with direct implications for your strategy:

VEI Value < 1

Market Condition is Normal & Stable
Market behaving typically. Clean structure. Better strategy performance.

VEI > 1.2

Market Condition is Unstable & Expanding
Volatility spike. Wicks, fakeouts, broken structure. Be cautious.

VEI < 1 and Decreasing

Controlled & Structured
Calm, orderly volatility. Pullbacks respected, trends smoother.

Think of VEI as a weather report for the market.
It doesn’t tell you the direction but it does tell you if the conditions are safe.

VEI’s Purpose: A Filter, Not a Signal

VEI is not designed to tell you when to enter.t is designed to tell you whether you should enter at all.ts job is classification, not prediction.

What 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
  

What VEI IS NOT

• A buy/sell signal
  
• A directional tool
  
• A price prediction system
  
• A timing indicator
  

Think of VEI as the gatekeeper of your strategy. If volatility is chaotic, even the best entry signal becomes unreliable.

The Best Starting Settings for VEI

A clean, proven configuration for VEI across Forex, Crypto, and Indices:

• ATR Short: 10
  
• ATR Long: 50
  

This combination captures:
Recent market behavior (ATR 10),Long-term volatility baseline (ATR 50).A reliable contrast between fast and slow volatility

These settings are balanced, universal, and have shown consistent behavior across trending and ranging markets.

Trade With More Confidence

The Volatility Expansion Index is the missing context filter for many traders.By identifying volatility regimes, VEI helps you:

• Trade only when your strategy has an edge
  
• Avoid unstable, random, dangerous market conditions
  
• Stay aligned with environments your strategy thrives in
  
• Reduce unnecessary losses from volatility spikes
  

When you understand volatility regime shifts, you trade with greater clarity and precision.
VEI doesn’t replace your strategy, it strengthens it.t ensures you operate in the environment your system is built for.