volatility trading indicator

 
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Volatility

Volatility is the variation in price over a specific interval (the difference between the highest and lowest prices). As the time interval being studied increases, volatility also increases to a maximum before leveling off. As prices increase, the volatility tolerance also increases. Volatility tolerance simply means that we would expect more price fluctuation as securities challenge all time highs.

We start out studying the price-volatility relationship, assuming that there is some positive correlation between the price level, time interval for measurement and potential price fluctuations. There are important advantages in finding a uniform
relationship. For example, a sharp movement down that reaches or exceeds the probable limits could be used as a purchasing opportunity.

Reference:

Kaufman, P.J. The New Commodity Trading Systems and Methods. John Wiley & Sons. New York 1980. Pages 99-101.


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