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Volatility,
Chalkin's
Description
The
Volatility indicator compares the spread between a
security's high and low prices.
This is done by first calculating a moving
average of the difference between the daily high
and low prices and then calculating the percent
rate-of-change of that moving average.
Before
calculating the Volatility indicator, you are
asked to enter the number of time periods in the
moving average and the number of time periods in
the R.O.C. The
author of this indicator (Marc Chaikin) recommends
10-periods for both the moving average and the
R.O.C.
Interpretation
This
indicator quantifies volatility as a widening of
the range between the highs and the lows (i.e.,
wider price swings during the day).
There
are two ways to interpret this measure of
volatility. One
method assumes that market tops are generally
accompanied by increased volatility and that
market bottoms are generally accompanied by
decreased volatility.
An opposing method (Mr. Chaikin's) assumes
that an increase in the Volatility indicator over
a short time period indicates that a bottom is
near (e.g., a panic sell-off) and that a decrease
in volatility over a longer time period indicates
an approaching top (e.g., a mature bull market).
Tips
Mr.
Chaikin recommends that investors do not rely on
any one indicator and suggests using a moving
average penetration or trading band system to
confirm this (or any) indicator.
Because
this indicator uses high and low prices in its
calculation, it will not work on securities that
only have a closing price (e.g., most mutual
funds). |
