Thank you for reading more! Here I will try to help you understand the volatility analysis you just read. Volatility is a measure of how much a tradeable security fluctuates around. In our analysis that you just read, we used a lot of volatility indicators, all of which can help investors get a better idea of how something is trading. Technical analysis traders rely on signals like this. So let’s get started – what do some of the volatility indicators that we talked about mean? Let’s list out some definitions.
Average true range: Developed by Welles Wilder, this tells us the degree of price volatility. Here’s the formula for it:
Fairly simple. This will not tell you the trend or whether a security is having a strong or weak trend, so you will need to use this indicator with many others together.
Bolinger bands: These are the bread and butter of many technical analysis traders. These were invented in the 1980’s, and since then, many traders have paid a lot of attention to them. In our analysis we gave many different indications of Bolinger bands including upper bands, lower bands, high band indicators, low band indicators and more. Combined together, these will really help you understand the trend, and we recommend studying them in depth.
Generally, many technical analysis traders will consider a security to be bullish if and when it breaks the upper Bolinger band, or bearish if it happens to go below the lower Bolinger band.
Keltner channel: The Keltner bands will be above and below a securities price. Usually, the upper band will be twice the average true range. What happens when the chart breaks one of these? Like with the Bolinger bands, it may be a clear signal that things are turning very bullish or very bearish. Pay close attention to these.
Donchian channel: Developed by Richard Donchian, these can be a pretty good indication of how bullish or bearish things are – the higher the better. There is some debate from traders as to what time frame should be used for these. In our analysis, we use a time frame of the last 14 days of trading.