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Strategy Video: What More Statistical Volatility Measures Say of SPX, FX

Strategy Video: What More Statistical Volatility Measures Say of SPX, FX

2016-06-09 02:07:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Volatility indexes like the VIX derive their measures from the premium paid for insurance
  • That premium is skewed by a rise in speculative appetite for volatility and distortions in sentiment
  • We expand on yesterday's video by looking at the more statistic measures of and use in volatility

Having trouble trading in the FX markets? This may be why.

Volatility is as ubiquitous a speculative asset class as ETFs, commodities and even equities nowadays. In turn, measures like the VIX give conflicting and distorted readings on the broader market. However, we can still derive meaningful information about our trading and market conditions from activity measures derived from price action itself. And, given the specialty volatility products derived from derivatives struggle to foresee large moves and give just as many false-signals; statistical measures may be superior in most aspects for traders.

The options for looking at a market's activity level can range from the more rudimentary average true range (ATR) to the more statistically-oriented Bollinger Bands (TM). When a target asset and general market are quiet, it is more likely that restraint remains and curbs extreme moves. The same is true of very active markets that suddenly turn quiet - much like Newton's 'law of inertia'.

We look at more readily accessible - and arguably 'accurate' - measures of volatility in today's Strategy Video as an extension of the previous conversation. With comparison between the VIX, ATR and standard deviations on historical price action; we review the S&P 500, EUR/AUD and NZD/USD among other pairs.

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