Weekly Volatility Analysis: German DAX (FDX)
Markets continually cycle through high and low volatility phases as they transition between sideways and trending stages. Volatility is a part of everyday trading, but when it’s excessive or extremely quiet, traders may need to adjust their trading style. Let’s take a look at one of the ways we use and then measure volatility.
At the crescendo of a high volatility phase we would expect a short-term decrease in market volatility. On the other end of the volatility spectrum, when a low volatility phase ends, we might expect an uptick in volatility over the short term. Knowing which phase a market is in can help both in selecting specialty trading systems as well as influence the aggressiveness of position sizing algorithms.
There are many ways to define volatility. For this analysis we are using an eight week standard deviation of percent return data and then calculation extreme upper/lower levels based on dynamic zones. Periods of high volatility are shown as grey vertical bands while low volatility phases are shown as tan vertical bands. At the conclusion of either phase a circle or square will appear signifying the end of the volatility period. Specifically, circles suggest a decrease in volatility while squares suggest an increase in volatility in the coming weeks or months. As always trade based upon your own analysis and risk tolerance.
Three Year Volatility Analysis: German DAX
