Futures Charts
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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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