I've been reading about volatility forecasting. All discussion relates to options.

Discussion in 'Trading' started by Kovacs, Jan 20, 2010.

  1. Kovacs


    But if I can forecast the volatility *range* of a stock for a given time interval, can't I use that information as a filter to identify trades on the stock directly?
  2. You could use it and people do.

    The major problem with stocks is it does not tell you direction,
    only an estimate of range.
  3. Kovacs


    If it can reach a certain degree of accuracy, I figure range information itself will be useful.

    By combining it with certain principles--such as support/resistance, microstructure patterns, crowd psychology etc--perhaps tradable signals will arise.

    For example, if the range estimate for t+1 is (h, l), look for the closest and strongest support and resistance levels within that range and scalp it Market-Maker style.

    Doing things quantitatively is new to me. Am I on the right track?
  4. I'm not a big fan of common TA, so I'm sure someone will chime in shortly.

    That being said, you could run various scenarios using monte carlo simulations on stock data (using vol parameters) and look back around points of support and resistance to see if that might have helped you any.
  5. Kovacs


  6. problem with anything in trading is that correlation doesn't predict causality.

    That being said some people have good models of volatility but I doubt it has anything to do with only simple volatility measures of implied vol.
  7. Kovacs


    So I was reading further about volatility when I came across something called the Taylor theorem. I looked it up on Wikipedia and saw that it was related to calculus. I know nothing of the latter so I started learning it today. Since it deals with rates of change, I presume calculus will be useful.

    How does calculus apply to trading in your experience?
  8. If you are really that interested to learn about volatility and it's various uses, without having a background in calculus, might I suggest you go read a copy of "Volatility Trading," by E. Sinclair. Great read and tons of ways to utilize volatility.

    Calculus isn't something you'll pick up easily on your own, although you can understand many of the applications without really having a strong background in calc.
  9. Kovacs


    Heh, that's exactly what I was reading. And yes--it's a great book. Easily the most lucid reference on volatility for someone like me.
  10. Kovacs


    Yeah, I want to know enough to understand the academic trading papers and also the formulae in the practitioner books. I doubt I'll go into advanced territory.

    I'm reading Calculus: An Intuitive and Physical Approach by Morris Kline. Fantastic for self-teaching.
    #10     Jan 23, 2010