Volatility and Trend

Discussion in 'Trading' started by rizwanuk, Oct 5, 2005.

  1. rizwanuk


    Does Volatility of a particular market has any correlation with its trendiness?

    Does increased volatility usually co exists or results in more trends or choppy markets?

    Any insight, tips, thoughts or comments on the relationship between volatility and trend will be welcome.
  2. rizwanuk


    I will appreciate any comments also if you have read any papers or books on this subject, I will appreciate a reference.
  3. At the beginning of a new (long-term) trend the volatility is low, and the older the trend growths, the higher the volatility increases. Just my 2 cents.
  4. kut2k2


    Depends on what you mean by volatility. During a strong uptrend that lasts several days in a row, volatility as measured by standard deviation of daily returns will be low, but volatility as measured by ATR will be high.
  5. hcour

    hcour Guest

    Volatility is relative. Markets cycle from low volatility to high volatility, a constant ebb and flow. In trading-ranges (consolidations) volatility is low, in a trend it's high. TR's start where trends end, as Pretzel noted, on climactic behavior, so the beginning of a TR has wide swings, high volume, wide price spreads, then at some point in the TR volatility contracts, volume diminishes, spreads and price swings narrow and the market is preparing for the next trend. Price may form an apex ("triangle" for pattern purists) as volatility reaches its nadir, then explodes to a new trend. There may be cycles of high/low vol w/in the TR itself, all preparation for the next move. These are general principles of course and there are infinite variations. Wyckoff is a good source for this, though he doesn't mention volatility specifically, that's what he's talking about.

  6. One of my concerns is that most people don't truly understand "implied" volatility (as reflected in the VIX, for example) vs. "historical" volatility. The two, when compared to one another actually show the trending direction, if not the magnitude (gammas) of the move.

    Due to basic math, as markets trend up or down, volatility goes up and vice-versa, when markets “stabilize” or become “choppy” implied volatility goes down.

    I suggest that you search through www.traders.com for articles on the subject ( a good start).


  7. Hi rizwa,

    People love talking Trend and Volatility around here. My advice to you about this is not to bother too much with it and certainly not to ask questions about their interrelation on ET. Simply do a search on TREND and you'll understand what I mean.

    If you ever want to make money, you'll have to ask yourself different questions altogether.