Volatility Analysis
When trading in the stock market we should not only look at whether the market is trending or consolidating but we should also deal with volatility.
Thus, it is important for the traders to understand the volatility indicators which can help them to trade more effectively.
Volatile periods in the stock markets can create big swings in the markets which can make it difficult for the traders to trade.
Extreme volatility can be seen in the market when certain news comes which are extreme.
High Volatility can be seen when the market is trending and low volatility occurs during the consolidation phase of the market.
What Is Volatility?
Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured as either the standard deviation or variance between returns from that same security or market index.
- Stock Volatility
- Historical Volatility
- Implied Volatility
- Market Volatility
- Gather the security’s past prices.
- Calculate the average price (mean) of the security’s past prices.
- Determine the difference between each price in the set and the average price.
- Square the differences from the previous step.
- Sum the squared differences.
- Divide the squared differences by the total number of prices in the set (find variance).
- Calculate the square root of the number obtained in the previous step.
- 1. Donchian Channel
- 2. Bollinger Bands
- 2. Keltner Channel
- 4. Average True Range (ATR)