How does one measure Volatility?

D

dberliner

Maybe this has been discussed in the past , but running a search for it is tough to sift through because the key words are quite abundant.

Please don't tell me the VIX is the measure (unless I could be enlightened with some valid argument), because I don't think it is. On a day when the dow goes a hundred points down , a hundred points up, back down a hundred, and again up (there was a similar day to this description sometime in the last 2 weeks) , and the VIX ends the day DOWN, how is this a measure of volatility? So it's a fear vs. complacency factor... people are more fearful in downward markets, still not a lot of trading value in that common sense maxim, if you want to take some sort of advantage of the volatility. Point is, just looking at eod vix value will most certainly not help you see that, so what do you use then?
 
Volatility cycles in a more uniform manner than price action. Therefore, you can use the Vix, Vxo, and vxn to measure the current cycle. I find when the volatility indices are in an uptrend, the market in general cascades to a crescendo of selling over time. Also when volatilities are heading lower, you can expect market price action to be a bit more stable and have and upward bias.

I like to watch the COT of the VIX. It can give good leading indications of when the commercials are positioning for big moves up or down.
 
think about it.

what exactly is volatility. how is it defined. how is it used. do you want past volatility, future volatility. what do you need it for.
 
Quote from dberliner:

Maybe this has been discussed in the past , but running a search for it is tough to sift through because the key words are quite abundant.

Please don't tell me the VIX is the measure (unless I could be enlightened with some valid argument), because I don't think it is. On a day when the dow goes a hundred points down , a hundred points up, back down a hundred, and again up (there was a similar day to this description sometime in the last 2 weeks) , and the VIX ends the day DOWN, how is this a measure of volatility? So it's a fear vs. complacency factor... people are more fearful in downward markets, still not a lot of trading value in that common sense maxim, if you want to take some sort of advantage of the volatility. Point is, just looking at eod vix value will most certainly not help you see that, so what do you use then?
More...

I think its odd that you talk about the intraday Dow price action and then compare such to the end of day VIX info.

Do you have access to intraday price action of the VIX???

If you do, why didn't you mention so and talk about the price action of the VIX when the Dow had strong directional price movement up and down in the same trading day???

Also, the VIX isn't the only way to measure the volatility of the intraday price action of any index, market breadth or trading instrument.

Further, if you really understand what volatility is...

You'll know there are several other ways to measure volatility on the intraday price action or end of day data without any indicators.

In addition, there has been recent discussions of such here at EliteTrader.com (key words are Volatility Analysis).

http://www.elitetrader.com/vb/search.php?s=

Simply, you need to sit down and determine exactly what you want to use it for, on what trading instrument or price action to fine tune your research into volatility analysis.

By the way, I've been using volatility analysis since the 80's and I can tell you there's a ton of value in using volatility in giving you a better understanding of the price action and that in itself allows you to profit consistently from it.

Regardless, the intraday price action of the VIX in realtime comparison with the price action of most trading instruments is an excellent place to start concerning futures and volatility analysis.

Mark
 
Quote from NihabaAshi:

I think its odd that you talk about the intraday Dow price action and then compare such to the end of day VIX info.

Do you have access to intraday price action of the VIX???

Mark
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after posting , I figured the term "eod" could cause some quandary..
What I meant ,in fact, is that to the unsuspecting observer, watching the market without context, and relying on vix value, that would not be a good measure of volatility ,because at the end of a day which was very volatile, this volatility measure would show less volatility in the markets. That was my meaning.
So of course you need context, you would say, and that is true, I was just noting the lack of usefulness of the vix as a standalone measure, and was wondering which measures could be used in conjunction.

I will most certainly read the links mentioned. Thank you.
 
Quote from dberliner:

...What I meant ,in fact, is that to the unsuspecting observer, watching the market without context, and relying on vix value, that would not be a good measure of volatility ,because at the end of a day which was very volatile, this volatility measure would show less volatility in the markets. That was my meaning.
So of course you need context, you would say, and that is true, I was just noting the lack of usefulness of the vix as a standalone measure, and was wondering which measures could be used in conjunction.

I will most certainly read the links mentioned. Thank you.
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I recommend that you do watch the market with context so that the VIX can be useful.

However, I strongly disagree with your statement...

at the end of a day which was very volatile, this volatility measure would show less volatility in the markets.

Simply, I still think you are measuring the actual intraday price action of the Dow against a data value of the VIX and such is not good use of the VIX.

Example - Dow up 100, down 100 then up 100 again while the VIX at the end of the day was 16.

Thus, to make use of the VIX and to understand the volatility of the Dow...

You need to look at the actual intraday price action and not a specific value unless you are going to compare one VIX value to a prior VIX value of the past.

The latter is useful for clues about position size management.

Regardless, unless you post chart examples of the price action you are describing to explain your statement...

I have not seen such a situation occur as in NEVER.

Thus, its possible I'm misinterpreting what you're saying.

Mark
 
Quote from NihabaAshi:


By the way, I've been using volatility analysis since the 80's and I can tell you there's a ton of value in using volatility in giving you a better understanding of the price action and that in itself allows you to profit consistently from it.
More...

Can you elaborate a bit on how/what you use it for (in general terms if you don't want to be specific).
Have been looking at volality analysis, but can't say I've found it very usefull. So I guess I've been looking in the wrong places.
 
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