Historical Volatility Demystified, Part III……by Tyler Craig

tylertrading Historical Volatility Demystified, Part III…...by Tyler Craig

In theory historical volatility is blind to the trend of the stock, thus it shouldn’t be used to predict stock direction. For example, suppose HV is high and you think it will begin to come back down to its average. Does that have any influence on your outlook on the stock? In other words, if you think HV is going to drop, does that mean the stock price will drop also? If you subscribe to the notion that volatility is blind to trend, then the answer is no. Remember HV measures price movement, not price direction. HV can be moving down whether the stock price is rising or falling. Conversely, HV can be moving up whether the stock price is rising or falling. Although theory states that there is not necessarily a direct correlation between HV and price direction, in the real world there usually is a distinct relationship between HV and price direction.

Click here for balance of post.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

You might be interested in:
blog comments powered by Disqus

In partnership with CNN Money Part of the CNN Network