Friday, 21 July 2017

What is Volatility and How It Can Be Estimated Precisely

In order to generate accurate tips for MCX or share market trading, traders need to implement a right trading strategy. The volatility helps the traders in implementing right trading strategies at right time.  In case the technical analysts and traders want to implement option strategy then it is very important to know the volatility of the stock.

In this post, you will get to learn three frequently used strategies that are discussed to measure the volatility of the stocks.

volatility graph

1.    High minus low
2.    Average True Range
3.    Bollinger Band Width

All the above technical indicators are easy to implement, thus technical analysts frequently use them.

1.    High minus low:
The name of the technical indicator itself represents its method. To determine the result, low price bar of the day is subtracted from the high price bar of the day. The result of this high minus low indicator is known as the pure price in technical terms. You can estimate the range of the bars with this simple to calculate the formula. Mathematically, it can be represented as follows

2.    Average True Range:
Average True Range is quite similar to that of the high minus low technical indicator. However, this indicator also takes into the account of overnight gaps in its formula. This indicator usually determines the average value over the period of 14 days. On the other hand, technical analysts can employ it for any time period as per their need in order to get greater sensitivity. In order to get the present and probable volatility of the stock from historical prices, the Average True Range indicators are been used.

3.    Bollinger Band Width:
Bollinger bandwidth is estimated from the Bollinger band indicators. The technical indicators put forward a formula of subtracting the lower Bollinger band value from the higher Bollinger band value. It is used to calculate the percentage difference between the upper band and the lower band. It is directly proportional to Bollinger bands. As the Bollinger bands get narrow the bandwidth gets decreased and as the Bollinger bands get widen the bandwidth gets increased.

Ultimately the volatility of the stock can be defined as the up and down situations of the market, which can be measured by the standard deviation of the stocks. To determine the volatility of an underlying asset, there are several technical indicators, which are used apart from the above-described indicators.

 As trading may put you in the loss if done without precautions, thus it is essential to calculate the volatility of stocks while trading. You can earn fat profits by trading and eventually you may even lose all your wealth if not executed in a well-planned manner and by generating accurate tips. Also, remember that implementing technical indicators is not that easy; thus you must take help of technical analysts or get yourself enrolled with some good advisory firms. Money Classic Research is one of the best advisory firms that offer free option tips intraday.  

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