Hi I am new to trading and I would like to know how to measure the volatility (price movement). EUR/USD is volatility during news and during price spike. I just want an alert when there is lot of activity in the market
The ATR indicator measure volatility.
There’s always activity in the market, that is why it’s a market. Not sure you can get alert for “lots of activities”. You can just check news schedule calendar to know when that will happen.
In options it’s variance of log returns of the price ( Log(Pt / Pt-1), in fx you can also measure variance of the data but I guess it will give you little clue on how to trade better.
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Onterio, I with you variance and deviation two names for the same bird,
Currently, I just use the trend line slope and don’t worry about the volume.
Make your system as easy as you can so that you can have focus on your trade.
Thanks @Maximus_martins. I have tried with the ATR and other indicators too. But couldn’t get the sort of action I am after. It’s hard to explain.
Thank you sir. I am not a quants trader but I am googling what you are trying to mean here by variance of price log.
agree and thanks also,
Use economic calendar and mark out the high voltage news schedule.
Hi, I would like to share pip range chart for several trading pairs on Forex market. You can see which pair has higher volatility during week days.
GetKnowTrading, where did that chart come from??
Basically what I mean is:
Consider you got a sample of 5 sequent daily close values of stock price: 45, 43, 48, 44, 50. You want to calculate volatility (or risk) of the stock.
As you can see the price make jumps from 45 to 43 , from 43 to 48 etc. You want to know how “wild” are this jumps, i.e. unpredictable. You may agree that stock jumping from 43 to 43.02 then to 42.99 is more predictable than stock with jumps of 43 to 60 from 60 to 30 etc. These “jumps” are proxy of your returns because the wilder are jumps = the more unpredictable your returns = the higher is risk of the stock. Direct indicator of unpredictability of these returns is their variance.That’s why when you hear that market pundits say “volatility has risen its very bad” you know that they speak about increased variance of returns of the asset.
For example you bought the stock at $45. Your return for a first day is ( 43 - 45 )/45 = -0.04 or - 4% Calculate the rest yourself.
For all days the common formula is (P(t) - P(t-1)) / P(t-1) or P(t)/P(t-1) - 1
Just to make sure it’s correct: r = P(t)/P(t-1) - 1 = 43/45 - 1 = -0.04
or 45(1+r) = 43 => 45(1+(-0.04)) = 43
calculate variance using returns data with formula E[X^2] - (E[X])^2 = calculate yourself. This gonna be the daily variance (risk) of the stock.
Then imagine that time passing from t-1 to t is infinitely small (like t-1 is 12:30:31124 and t is 12:30:31125). Why we need that? To calculate return of the asset in infinitely small “jump” of time. Like if the price of a stock jumped from 45 to 43 in infinitely small period of time. For real time markets the smallest P(t) - P(t-1) I guess is millisecond or 0.001 second.
in this case: 45*e^r=43 , taking logs from both sides r = log(43/45) or log(P(t)/P(t-1)
or take the logs from this: 45(1+r)=43 => log(1+r) = log(43/45), where log(1+r) approx. equal to r if r is small.
where e = (1+1/n)^(n) (see what means exponential growth)
Using these log returns you can calculate variance a stock for example for 1 2 3 seconds etc.
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ontario, thanks for the education
I have taken research based on GMT+1 and one year period(12/2017-12/2018).
Here is more details on this topic and where you can find more charts: https://getknowtrading.com/forex-trading-beginner-tutorial/
Thanks for the web site, frankly I was interested in a link to the chart you posted or do you make it manually??
I compute my own percentage of deviation for any time frame. While I used to use Bollinger Bands I pretty much do it by eyeball now.
As a basket trader what I like about your chart is the ability to visually see the correlations spreads at a glance.
I have done it manually by extracting data from MT4 platform. After that I made this chart.
Thank you for clueing me in. That is beyond my capabilities.
I after use TVC and place the pairs of interest in a compare mode/chart and for the currency themselves Mataf index chart.
To earn something, we have to work hard. Nothing in life is easy so always work hard for your goal.
NOT
That’s like saying I don’t make enough so I’ll just work more… not
work smarter not harder
What else did your mom (metaphor) teach you to hurt your trading efforts?
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I agree with many people who wrote in this thread. As a warning signal about the increase in volatility, the economic calendar is suitable. This is best.