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Volatility Indicator is a technical indicator is a distinctive attribute yet effective way to start tracking this tool when trading.
Volatility is measured by measuring the standard deviation of yearly returns over a given period of time showing the range to which the price of a security may increase or decrease.
Volatility gauges the fluctuations in the returns of underlying assets indicating the price behavior of the security and estimating the fluctuations that may happen in a short period of time.
HOW TO USE VOLATILITY INDICATOR
The Volatility indicator is helpful in potential reversals based on the true range of price is based on the premise.
Strong trends upward are marked by decreases in volatility.
Strong trends downward show a general increase in volatility.
Reversals in trend usually occur when volatility increases.
There are many volatility indicators available for stock traders and some of the most commonly used ones include the VOLATILITY INDEX, ATR, BOLLLINGER BANDS.
Volatility in the stock market goes through many phases of high and low volatility. Investors watch the direction of market movement when there is a sharp increase in volatility as a possible indication of future market trend.
As the prices of a security fluctuate more in a short time span, it is termed to have high volatility. If the prices of a security fluctuate slowly in a longer time span, it is termed to have low volatility.
Volatility indicator might be useful in determining strong trends and potential price bottoms.
Volatility indicators that will help to measure the level of the volatility and itís important to fully understand the tool we are going to use. Considering all these in mind there is no best volatility indicator to use so donít spend too much time picking the indicator. This applies to any market. Apply it to the chart using the standard setting and that should help begin to learn how to see volatility in price action.
FINAL WORDS ON VOLATILITY
Volatile periods in the markets can, in the worst scenario, create wild and sharp swings in the markets which can make them difficult to trade. We often see extreme volatility after certain news releases and world events that are extreme in nature and this type of action is easily seen on the chart.
Volatility can be more subtle which we see during extended runs during trending markets and more muted volatility during the consolidation phase of the market. Each of these types of environments are going to have different types of market approaches that can be used.
This is not a single volatility indicator but combines both the Keltner Channel and the Bollinger Bands. It takes full advantage of the difference in the way both indicators measure and react to changes in volatility which can assist you in determining true breakouts as well as the end of a trending move.
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