Implied Volatility: What is it & Why Should Traders Care? | Metals Mine

  • Implied Volatility: What is it & Why Should Traders Care?

    From dailyfx.com

    Implied volatility is a number displayed in percentage terms reflecting the level of uncertainty, or risk, perceived by traders. IV readings, which are derived from the Black-Scholes options pricing model, can indicate the degree of variation expected for a particular equity index, stock, commodity, or major currency pair over a stated period of time. For instance, the popular VIX Index is simply the 30-day implied volatility reading for the S&P 500. A high VIX level (i.e. percent), or high implied volatility reading, indicates that risk is relatively elevated and there is a greater chance of larger than normal ... (full story)

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LloydOz
Feb 16, 2021 10:15am — Edited
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Quoting WinUp667
Should I not bother looking into implied volatility? I'm a 8 month noob. Thanks you in advance.
It depends, of course. Forget IV, that is mostly for options traders and subjective analysis like sentiment (along with other stuff like COT, put/call ratios, volume, news, forum tips, and everything else in that kinda basket).

Rather, get to know how to calculate historical volatility and have say a 30 bar average of it in a sub window. It may provide you with some ideas in general.

Like, you may wish to trade during times of low volatility. Some prefer high volatility. See? It depends on your trading style.

It is not directly related to direction, and you'll know why when you understand the calculations, which are not too tricky. Hint - use RMS instead of standard deviation..

Edit - Average true range is a loose proxy and probably about 99% correlated with volatility. Its fine as long as you know it is specific to what you are looking at - it is not standardised in any way. Also, I can't find any historical volatility thingys for MT4. This is strange.
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Trader#A394
Feb 16, 2021 4:48am
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Do not see why anyone (trading) should care really. The relationship is so unstable (period to period) and tedious to apply in timing moves that it is of little practical use in trading. It is important to note that the trader actions price movement as it evolves, but the analyst may need to provide background information to for instance clients of a fund. These needs differ and anything that cannot be used standing on your feet as a trader, is of little practical help. Indeed, the only notion of volatility (and one not strictly in line with the finance definition of volatility), is whether and which way price is deviating from some mean line or area of the strange attractor (market chart). That is easily determined by a combination of oscillator read and visual inspection in real-time. For the astute trader that is all he or she needs to know about any sort of volatility implied or not.

The Crow (-_-)

PS: No one should feel inadequate or inferior because he or she is unaware of the many esoteric and usually non fortune changing concepts that have been advanced over time as important to price discovery. The record does not show that anyone has made a dime more by such knowledge. The market is by nature too unstable anyway to employ most of those sedate concepts that are wont to be advanced as crucial knowledge.
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WinUp667
Feb 16, 2021 6:37am
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Should I not bother looking into implied volatility? I'm a 8 month noob. Thanks you in advance.
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Trader#A394
Feb 16, 2021 9:49am
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Quoting WinUp667
Should I not bother looking into implied volatility? I'm a 8 month noob. Thanks you in advance.
Try to understand it as well as you can. Then see if you can apply it usefully and if not, and should you decide to ignore the concept after that then know you are not alone, I dropped it off my list of useful concepts 12 years ago. I have not missed it since.

The Crow (-_-)
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