It is easy to identify the historical volatility of stock without making calculations or using trading platforms. In this short tutorial, I will show you three elementary methods to get and understand historical volatility.
Volatility is one of the most important aspects to consider when choosing to invest in a financial asset. Many factors influence volatility and can push prices up or down.
Remember that analyzing the historical volatility of a stock does not help predict future volatility. The analysis of historical volatility is always helpful in calculating the position size or putting a stop-loss.
Implied volatility is the best tool to predict the volatility of a stock market and is calculated using the option price. The Vix index is an excellent indicator for forecasting future volatility.
To analyze historical volatility, the Average True Range indicator can be used, avoiding calculations or formulas in Excel. In addition, the ATR also considers the gaps that arise in closed markets.
The best time frame to analyze the volatility of a share in the daily. During the day, volatility follows a fairly predictable pattern, which increases at the beginning and end of the trading session.
Let’s see the easiest way to get historical volatility in a simple and accessible way.
How to check historical volatility with TradingView
TradingView is one of my favorite trading platforms. It is entirely online and tracks all user settings, indicators, texts, drawings, or others through the cloud.
To check the volatility of a stock or other financial instrument, search for it on TradingView using the name or ticker.
Once the chart is open, you will need to add the Average True Range indicator or Historical Volatility indicator. Both indicators measure historical volatility, the most famous of which is the Average True Range, and that’s what I prefer.
The procedure is effortless. In this short video tutorial, however, I show you all the steps.
We will add an Average True Range and a Historical Volatility indicator to an Apple chart without registering an account.
The Average True Range can also be used as a percentage and is probably better if you don’t want to do any math. Here, search their indicators database for the Average True Range Percentage and add it to the chart.
The Average True Range calculates volatility based on several periods. It is nothing more than a moving average of volatility, so the longer the period, the more the indicator line flattens.
A 14-period Average True Range percentage showing 2% means the stock has had average volatility of 2% in the last 14 trading days.
Remember, not only the percentage value is essential, but also the direction of the indicator. It is crucial to know whether volatility is increasing or decreasing, and the direction of the ATR line will give us an immediate indication.