Introduction to Volatility Analysis
Here is a brief introduction video to the Autochartist Volatility analysis. It explains the analysis and how it can be used to make more informed trading decisions.
Volatility Analysis is a comprehensive tool that provides expected trading ranges for all instruments over the next 1 hour, 4 hours, and 24 hours. Its insight into expected price range movements enables traders to understand and harness market volatility effectively.
Its visual presentation and detailed data allow even beginner traders to incorporate these fluctuations into their trading strategy. Volatility Analysis provides vital information for all types of trading, allowing for more informed decisions amidst dynamic market conditions.
Using over six months of historical data, we forecast the future volatility of any instrument based on past volatility for every day of the week and for every 15-minute interval of the day. These forecasts are based on standard deviation and show that the probability of the price staying within the expected range is 68% or one standard deviation.
The volatility analysis tool provides three different time frames: the expected volatility for every day of the week, the volatility for every hour of the day, and the expected volatility for the next 24 hours.
Expected volatility for every day of the week: This information looks at daily volatility levels, giving you insights into the most and least volatile days of the week. While the differences in volatility at this level may not be as extreme as those in the hourly or future-looking graphs, they still provide traders with valuable insights into which days best suit their trading style.
Expected volatility for every hour of the day: These movements look at the usual volatility of the selected instrument at all hours of a typical trading day. The range here is measured in pip movement rather than price. This information is helpful as it gives you insight into when your instrument experiences the most and least volatility throughout a trading day. Having this knowledge is vital when deciding when to enter or exit trades in line with your personality profile. For those suited to high-risk and high-volatility trading, you can focus your activity around the most volatile hours, which usually fall at the open of the London and New York markets. Those with a more conservative trading style can look for periods where the market is more predictable to focus their efforts.
Expected volatility for the next 24 hours: This is shown by a range of potential movement for the next 15 minutes, 30 minutes, 1 hour, 4 hours, and 24 hours. As one would expect, as the timeframe increases, the possible movement size also increases.
With this knowledge at your disposal, you can make a more informed decision on where to place your stop loss and take profit levels according to what you want out of your trade. For example, if you wish to increase the chances of staying in a trade longer than 24 hours, you can set your stop loss outside the green area. On the other hand, if you want to be out of a trade before the 24-hour mark, you know you should set your take profit within the green area.