Consider screening for high volaltilty on a monthly chart for trendy stocks. The higher the volatiltiy on a monthly chart the more trendy the lower time frames become, etc daily. They have to "trend" in order to catch up with the monthly. John
what if shorter term volatility acclerated because the price is falling in that time frame, but longer term time frame says prices are rising? in this case the measure would say the trend is acclerating, but which way? let me ask in another way. people always say that the SP market doesn't trend well and is the least trendy. does anyone have any statistical evidence of this? if yes, what measure did you use?
lets block out the other factors for now (risk/reward, correlation, etc.) lets say all you want to do right now is rank 10 markets from the most trendiest to the least trendiest. how would you do this? what statistical measure would you use?
I would select the market that moves the most $ in the unit of time. Tharp's Efficiency Index could be a measure of it. I probably don't understand what you're looking for. Depending on how you plan to trade it, how you set your stop loss and your target, these may interfere with support / resistance levels, channel boundaries, averages you track, TA indicators you watch, pending news, etc..
First eliminate all bear markets. Bear markets can unfold in a myriad of patterns, thus they trend for a while and then go sideways. Second identify all bull markets. Bull markets can only trend one way UP. When they correct its usually either a quick downtrend, or a few shorter term downtrends. Next evaluate the historical volatility, last 10 years, of each bull market. And where it is in relationship to the mean price of that time span. Markets that are near historic highs have virtually no overhead resistance, i.e. gold 1970's, stock indices 1980 - 90s, bond market 2000+, crude the last couple of years, Google and the Transports now! With no historical overhead resistance they can trend stronger and higher with large percentage gains in short periods of time. It's not quantative analysis, it's real life experience. Good luck!
Using the simple way I described above, after a quick calculation and assuming I haven’t done a calc mistake Volatility using daily data 0.011942 (annualized 18.96%) Volatility Using Weekly data 0.024547 (annualized 17.70%) The market qualifies as mean reverting.
What keeps you from using your own "intuition" to figure it out? What does the term "volatility" mean to you? Markets can be quiet with little movement or volatile with significant swings in both directions. Most markets display both kinds of price action. How much more "intuitive" do you need the explanation to be? Steve
cbot uses 250 vs 252 for annualizing the dailies from http://www.cbot.com/cbot/pub/page/0,3181,774,00.html Annualized Historical Volatility Formula annualized historical volatility = square root of ( 250 * variance of natural log differences in daily prices for the calendar month)
The intuition is simple. Imagine an ant that is moving with a speed of 2 meters per minute. If the ant is moving towards one direction (trending) you expect it to be at a distance of say 1.5 meters after one minute. If the ant is randomly wondering around (normal market) you expect it to be at a distance of say ¾ of a meter after one minute. If it is moving back and forth (mean reverting market) you expect it to be at a distance half a meter after one minute. Daily volatility measures the ant speed. Weekly measures how far on average you find it from his previous possition.