Volatility prediction method
zyh0218:
hi,
how can you roughly predict future volatility in short term? I mean beside news calendar, is there any methods or tools to identify which currency pair would be volatile for example tomorrow, next 3 days or next week? From my experience, i do this by calculating the average daily/weekly range, but works not ideal in real trading. Very thanks if someone can share better ideas.
regards
Well, my understanding of Bollinger Bands is that when they're very close together (low volatility) for a while there is an increased probability for some sort of move, breakout, or what have you.
Look up "Bollinger Squeeze" on Investopedia. That may give you a starting point.
Yes, you may "predict" it in various ways (just theory):
- Price accelerates as it is getting near an important pivot-Support and resistance (you can see it coming before it happens).
- In some brokers you can see negative spreads on non-liquid instruments for a few seconds (the ask below the bid), after this there is usually a strong move (a big fish moved in).
- You can normalize the Fx volumes and make an oscillator that may predict the high and lows of future volatility. Yes, they are not TRUE volumes, but they depict real market cycles.
- You can anticipate volatility for certain hours and events (no brainer).
- Bollinger band squeeze, when the range is very tight most of the people are just waiting for the news relase, but news trading is a little bit dangerous for the retail trader.
- Lagging volatility indicators may work too! In theory if they start showing momentum, you can ride some of it before it fades.
- Price accelerates as it is getting near an important pivot-Support and resistance (you can see it coming before it happens).
- In some brokers you can see negative spreads on non-liquid instruments for a few seconds (the ask below the bid), after this there is usually a strong move (a big fish moved in).
- You can normalize the Fx volumes and make an oscillator that may predict the high and lows of future volatility. Yes, they are not TRUE volumes, but they depict real market cycles.
- You can anticipate volatility for certain hours and events (no brainer).
- Bollinger band squeeze, when the range is very tight most of the people are just waiting for the news relase, but news trading is a little bit dangerous for the retail trader.
- Lagging volatility indicators may work too! In theory if they start showing momentum, you can ride some of it before it fades.
If you have an edge you can calculate its mathematical expectancy by doing an MFE and MAF test (with volatility as reference), then you have an idea of the market historical volatility in relation to your entries and know what to expect without knowing the future.
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hi,
how can you roughly predict future volatility in short term? I mean beside news calendar, is there any methods or tools to identify which currency pair would be volatile for example tomorrow, next 3 days or next week? From my experience, i do this by calculating the average daily/weekly range, but works not ideal in real trading. Very thanks if someone can share better ideas.
regards