Volatility indicator

[Superboot]

Hi all,

Heard an 'expert' comment that she uses volatility as a tool to keep her out of
volatile non-trending markets. I am thinking the chaikin volatility indicator
might be what I am after.

Has anyone used this indicator? Have others used some other tool to keep them
out of volatile conditions?

Thanks in advance.

Cheers
S

 

[tech/a]

I look for volatility!

 

[wayneL]

Hi all,

Heard an 'expert' comment that she uses volatility as a tool to keep her out of
volatile non-trending markets. I am thinking the chaikin volatility indicator
might be what I am after.

Has anyone used this indicator? Have others used some other tool to keep them
out of volatile conditions?

Thanks in advance.

Cheers
S

Volatility can be a tricky thing and can be measured in different ways for different purposes.

Consider two instruments: One chops up and down alternatively by 1% each day for a month finishing essentially where it started, the other rises 0.5% every single day for a month.

Chaikin's vol with have the first as the more volatile, yet you would have kicked a goal by buying the second one. Compare Chaikin's Vol or ATR to standard deviation in this sort of situation. They measure volatility in a different way.

Tip: Compare event vol (shorter time frames) to native vol (longer time frames) and observe the inter-relationship for trading opportunities.

Volatility is useable but you need to understand what is being measured

 

[Superboot]

Thanks for your comments

The context for which I am currently considering volatility relates to entering/exiting the market. I know a couple of years ago I was constantly being stopped out of a discretionary trend system I was trading. Something I would like to avoid this time around!

It sounds like I can also consider volatility for individual shares - will need to do some more analysis on this one.

 

[tech/a]

Thanks for your comments

The context for which I am currently considering volatility relates to entering/exiting the market. I know a couple of years ago I was constantly being stopped out of a discretionary trend system I was trading. Something I would like to avoid this time around!

It sounds like I can also consider volatility for individual shares - will need to do some more analysis on this one.

Do you have metastock?

 

[Superboot]

Do you have metastock?

Nope - Am an amibroker hack

 

[weird]

Do a google for Van Tharp Market Types, which will direct you to free newsletters, heaps of talk about volatility indicators.

I don't use any the volatility indicators mentioned (I use one definition sort of to reject trades) there but did borrow a direction concept which I use to adjust stops on a system depending on market type, although the stop I use is so simple but have never seen it mentioned in any forums, books or conversations ... actually the stop is probably not logical until you test it.

 

[pixel]

I've been using ATR for a number of years - with great success, if I may say so myself.
The "trick" is: I don't simply look at the standard ATR as drawn in just about every charting package worth its name; I reduce it to a percentage of the average traded shareprice, and then enter (or exit) only when a break level derived from that combination is violated. Those events I mark in my charts by directional (blue/green and red/yellow) arrows.

You can find plenty of graphic examples at my examples page

(You may need to scroll down a few pages till you get "A Ray of Hope")

 

[weird]

I've been using ATR for a number of years - with great success, if I may say so myself.
The "trick" is: I don't simply look at the standard ATR as drawn in just about every charting package worth its name; I reduce it to a percentage of the average traded shareprice, and then enter (or exit) only when a break level derived from that combination is violated. Those events I mark in my charts by directional (blue/green and red/yellow) arrows.

You can find plenty of graphic examples at my examples page

(You may need to scroll down a few pages till you get "A Ray of Hope")

Had a quick look at your page, there are cycles in some markets, but I do not look at fibinachi or even weekly/monthly %.

To me these are ghost indicators.

I do trade a system based on volatility, but is based on finding a box or rectangle pattern.

 

[Wysiwyg]

I've been using ATR for a number of years - with great success, if I may say so myself.
The "trick" is: I don't simply look at the standard ATR as drawn in just about every charting package worth its name; I reduce it to a percentage of the average traded shareprice, and then enter (or exit) only when a break level derived from that combination is violated. Those events I mark in my charts by directional (blue/green and red/yellow) arrows.

You can find plenty of graphic examples at my examples page

(You may need to scroll down a few pages till you get "A Ray of Hope")

Hi pixel. As per your website the ....
RTT ATR DTR rel ---- Relative Average True Range, expressed as percentage of median price.

This is a daily chart of TAP with Daily True Range Histogram and ATR(8) overlay with axis in percentage. The lower pane is volume. The price chart has the EMA(233) and EMA(55) plotted on it.

Would it be easy to pinpoint (show) an entry and exit on this chart using your above bold typed strategy? Like the percentage connection too.

Thanx.

 

[pixel]

Hi wysiwyg;
The old TAP dog may not be the best example for a daily chart as it's oscillating rather rapidly. I adjust my trading horizon to the swing periods first. Where a stock has a history of consistency over a month or more, daily charts are OK; much less, and I switch to hourly or half-hourly periods. (Or I leave them alone and filter for better prospects.)
But take TAP on an hourly chart, as below, and you see each pair of arrows (up amd down) marking a reasonable trade.
(Ignore the first blue arrow, which merely suggests the earlier history off-screen would likely be Long)

In reply to weird's objection to Fibonacci Analysis: I don't use them for anything but estimating potential targets. Under certain conditions, I find that 200% extension goes with a retracement back to 50%; 61.8 and 161.8 form a pair as well. So, before I even enter a position, I take a reasonable target (read: profit expectation) which I compare to the current stop level (read: risked loss); if the ratio appears worthwhile, I buy as many or as few shares as needed to keep the initial risk (potential loss) below the pain threshold.
But if the stock refuses to play by those estimates, I don't hold grudges or insist on my first estimate being right: The live chart and associated start/stop levels tell me what to do.

 

[Superboot]

Do a google for Van Tharp Market Types, which will direct you to free newsletters, heaps of talk about volatility indicators.

I don't use any the volatility indicators mentioned (I use one definition sort of to reject trades) there but did borrow a direction concept which I use to adjust stops on a system depending on market type, although the stop I use is so simple but have never seen it mentioned in any forums, books or conversations ... actually the stop is probably not logical until you test it.

Thanks for this reference - this is how I am currently looking to use/consider volatility. Have also signed up for the newsletter.

 

[rensionurne]

I am interested in estimating stochastic volatility models using the state space representation in eviews, but I am having troubles in coding the model. Does any one know how to set up the estimation code?

Thanks

 

[tech/a]

I am interested in estimating stochastic volatility models using the state space representation in eviews, but I am having troubles in coding the model. Does any one know how to set up the estimation code?

Thanks

http://www.mathhelpforum.com/math-help/

Although Im sure your taking the pi$$

 

[mazzatelli]

I am interested in estimating stochastic volatility models using the state space representation in eviews, but I am having troubles in coding the model. Does any one know how to set up the estimation code?

Thanks

Try using Matlab &/or R. There's much more documentation re. Kalman filtration etc.
R also has the econometrics module that has SSM embedded.
Eviews is more basic relative to other stat software

tech/a's link is more for questions relating to the concept. If you want implementation - you're better off asking a quantitative finance forum.