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Chapter 13: Volatility: Marking Risk within the Trend

  • Michael C. Thomsett
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Practical Trend Analysis
This chapter is in the book Practical Trend Analysis

Abstract

The term “volatility” describes unpredictable price movement, fast directional swings, and overall risk involved with investing. Volatility is price uncertainty. Prices can and do move even when volatility is low, and volatility does not forecast or predict price movement in either direction. It is a mistake to equate volatility (market risk) with price movement or its symptoms. In times of high volatility, risks are greater but so is profit potential. Depending on whether you are tracking a primary or a secondary trend, volatility in the trend itself reveals a lot. For a primary trend, increasing volatility could forecast the end of the trend and for a secondary trend, volatility often forecasts a quick return to the primary trend. In swing trends, volatility offers great opportunity for fast profits if trade timing is made skillfully and based on strong signals and confirmation.

Abstract

The term “volatility” describes unpredictable price movement, fast directional swings, and overall risk involved with investing. Volatility is price uncertainty. Prices can and do move even when volatility is low, and volatility does not forecast or predict price movement in either direction. It is a mistake to equate volatility (market risk) with price movement or its symptoms. In times of high volatility, risks are greater but so is profit potential. Depending on whether you are tracking a primary or a secondary trend, volatility in the trend itself reveals a lot. For a primary trend, increasing volatility could forecast the end of the trend and for a secondary trend, volatility often forecasts a quick return to the primary trend. In swing trends, volatility offers great opportunity for fast profits if trade timing is made skillfully and based on strong signals and confirmation.

Chapters in this book

  1. Frontmatter i
  2. Contents v
  3. Introduction to the Second Edition: The Basic Problem with Numbers xi
  4. Chapter 1: The Theory of Trends: Dow, EMH, and RMH in Context 1
  5. Chapter 2: Statistically Speaking: Trends by the Numbers 25
  6. Chapter 3: Resistance and Support: A Trend’s Moment of Truth 53
  7. Chapter 4: Trendlines and Channel Lines: The Shape of Things to Come 73
  8. Chapter 5: Reversal Patterns: End of the Trend 95
  9. Chapter 6: Continuation Patterns: A Bend in the Trend 135
  10. Chapter 7: Confirmation Signals: Turning the Odds in Your Favor 163
  11. Chapter 8: Consolidation Patterns; The Sideways Pause 183
  12. Chapter 9: Volume Signals: Tracking Price Trends 201
  13. Chapter 10: Mind the Gap: When Price Jumps Signal Change 223
  14. Chapter 11: Moving Averages: Order in the Change 241
  15. Chapter 12: Momentum Oscillators: Duration and Speed of a Trend 257
  16. Chapter 13: Volatility: Marking Risk within the Trend 271
  17. Chapter 14: Fundamentals: Connecting the Two Sides 285
  18. Chapter 15: Overview: Putting It All Together 305
  19. Bibliography 319
  20. Index 323
https://doi.org/10.1515/9781547401086-013

Chapters in this book

  1. Frontmatter i
  2. Contents v
  3. Introduction to the Second Edition: The Basic Problem with Numbers xi
  4. Chapter 1: The Theory of Trends: Dow, EMH, and RMH in Context 1
  5. Chapter 2: Statistically Speaking: Trends by the Numbers 25
  6. Chapter 3: Resistance and Support: A Trend’s Moment of Truth 53
  7. Chapter 4: Trendlines and Channel Lines: The Shape of Things to Come 73
  8. Chapter 5: Reversal Patterns: End of the Trend 95
  9. Chapter 6: Continuation Patterns: A Bend in the Trend 135
  10. Chapter 7: Confirmation Signals: Turning the Odds in Your Favor 163
  11. Chapter 8: Consolidation Patterns; The Sideways Pause 183
  12. Chapter 9: Volume Signals: Tracking Price Trends 201
  13. Chapter 10: Mind the Gap: When Price Jumps Signal Change 223
  14. Chapter 11: Moving Averages: Order in the Change 241
  15. Chapter 12: Momentum Oscillators: Duration and Speed of a Trend 257
  16. Chapter 13: Volatility: Marking Risk within the Trend 271
  17. Chapter 14: Fundamentals: Connecting the Two Sides 285
  18. Chapter 15: Overview: Putting It All Together 305
  19. Bibliography 319
  20. Index 323
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