market volatility
TRANSCRIPT
The Academy of Financial Trading
Market Volatility
Market Volatility explained
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Risk Warning
Volatility – the way to describe market movements
In its simplest form volatility really describes the pace at which prices move higher or lower, and how wildly they swing
Market Volatility explained
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These can be prices of just about anything. However, Volatility has been more exhaustively studied, measured and described in Financial Markets
It really just measures the changing of a market’s price relative to time
It would then follow that Markets prone to high volatility present to us as traders much more opportunities
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Low Volatility
This typically describes a Market that is not moving very much or has a low price change relative to time
Traders who seek to make profits from small movement typically favour such an environment or set of circumstances
Most traders who are employing scalping techniques (trading short term movements) might trade certain markets based on their volatility – simply because it is more favourable to them or more conducive to their strategy's’ success
Market Volatility explained
High Volatility – the scary one!
Most investors tend to steer clear of highly volatile markets – many see it as too risky
Sometimes analysts may use historical volatility - how much volatility an asset has had over the past 12 months – as a way to gauge or estimate future volatility. Some may use Monte Carlo methods
In finance, Monte Carlo methods are used to simulate the various sources of uncertainty that affect the value of an asset, and then to calculate a representative value given these possible value of the underlying inputs
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Based on the calculations and outputs an investor may make decisions he sees as ones that encompass all possible scenarios
Market Volatility explained
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The Conclusion
In general, price volatility can be caused by factors that produce wild swings in demand and supply
They can also be affected by human emotions - this makes predictions harder
Our method uses a more favourable approach of position sizing based on volatility – this keeps us out of being overly dependent of one market, or even having our overall portfolio exposure affected by certain volatility
As technical traders we use recent facts and established patterns to base our future predictions upon
The classical Economic way to calculate Volatility is it is computed as the annualized standard deviation of the percentage change in the daily price.
http://www.businessdictionary.com/definition/volatility.html#ixzz3VVgvplzSMarket Volatility explained
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