Hi, This is my first post at at Elete. I'm a beginning swing/daytrader. I subscribe to Tradingmarkets.com so alot of my learning has been from Dave Landry and Kevin Haggerty. Yesterday in his commentary Haggerty mentioned a "volitility band play in the SMH" that was a layup. While I have a sence of what this means could someone clarify or post a link to information on volitility bands for daytrading. I'd like to know how you calculate the volitility band for a stock and entry/exit rules. Thanks, Ed
Ed, There are moving average bands, but they don't track volatility. The only thing I can think of that he might be referring to would be Bollinger Bands, as they expand and contract based on the stock's volatility.
And then there are Keltner Channels. they are based on the ATR which is a measure of volatility too. http://www.linnsoft.com/tour/techind/keltner.htm regards/greg
when he refers to volitility bands he is referring to a strategy which is derived based on option prices and the standard deviation levels that the option market is pricing. In the past you could find his formula by digging into his column archives.
I believe Haggerty is less concerned with the option implied volatility and more concerned with the actual volatility of the stock (usually short term). You can then use the short term historical volatility to compute upper and lower price bands. The presumption being that depending on how many standard deviations you use they will usually contain that day's price fluctuations. Like most things - they work when they work and they don't work when they don't.
Ewile There is a site that gives volatility band scan results every day. It's at SchaeffersResearch.com http://www.schaeffersresearch.com/sentiment/market_observations.asp?ID= Good trading Steve
I think Schaeffer's volatility bands are different from what Haggerty is talking about - Schaeffer uses an offset above and below the 20 day moving average and Haggerty is doing X standard deviations from the previous close. And it seems that the Schaeffer published scans are actually a day old (i.e., the ones that come out around noon in their midday recap were from previous night).
http://www.tradingmarkets.com/.site/stocks/education/strategies/01042000-3274.cfm the above is a link to hagerty's volitility bands. It does involve taking the implied volitility of the option.