Historical Volatility
February 28, 2009
To the pure chartist this indicator can be employed as an initial filter, which can be applied over a selection of markets, to arrive at the most suitable individual market that will fit a particular style or method.
Volatility is a measure of how wild or quiet the market is relative to its history. It can be more accurately defined as the standard deviation of a series of price changes measured at regular intervals.
Volatility is generally measured using price changes expressed in logarithmic form, but can also be assessed using percentage changes in price. Price percentage changes would appear to reflect a more accurate picture of the market, despite the assumption that prices change at fixed intervals, which isn’t necessarily how it is. On the other hand, logarithmic price changes assume prices are changing continuously, but that doesn’t necessarily depict the market as it really is either.
This indicator is most often used by options traders, but can sometimes be employed in the selection of suitable markets for particular trading methods and styles. It can be used in conjunction with implied volatility to see how the current markets expectations differ from history and finally it is a crude indicator to a change in trend.
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