Volatility

Type

Volatility Indicator – price compared to moving average

How does it work?

The indicator does not provide an indication of the securities price direction or duration, but the degree of price movement or volatility.

Volatility cannot predict price direction or duration, simply activity levels. Low levels indicate quiet trading (small ranges) and high levels indicate violent trading (large ranges).

Trading Signals

High values are normally found just before market tops and bottomsLow values are usually found in ranging markets

Settings

ShareChart Default: 10 period

Note: When analysing stock options you can also analyse implied volatility by indicating current interest rate and dividends if any. Implied volatility is a theoretical value designed to represent the volatility of the security underlying an option as determined by the price of the option. The factors that affect implied volatility are the exercise price, the risk-less rate of return, maturity date and the price of the option. Implied volatility appears in several option pricing models, including the Black and Scholes Options Model.

Example

The following chart of Boral Ltd experienced high volatility reading at a major bottom in March 2003. In September 2003 it experienced high volatility again at a major top. Then in November volatility was high again at a market bottom.

To change setting on Volatility, go to Settings>Indicators>Volatility. The above chart had the following settings: