| Historic Volatility | |
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Historic volatility is the standard deviation of the "price
returns" over a given number of sessions, multiplied by a factor
to produce an annualized volatility level. A "price return" is
the natural logarithm of the percentage price changes or
ln[Pt/P(t-1)].
A volatile market therefore has a larger standard deviation and
thus a higher historical volatility value. Conversely, a market
with small fluctuations has a small standard deviation and a low
historical volatility value. Historical volatility are available
in the daily chart and statistics section of our site.
Historical volatility can also be used as a tool by traders who are trading
only the underlying instrument. Quantifying the volatility in a market can
affect a trader's perception of how far the market can move and thus provides
some help in making price projections and placing orders. High volatility may
indicate a trend reversal as heavy buying/selling comes into the market and may
sharp price reversals.