How much do you know about volatility?

From now on, as a small serialized series,volatilityI think I'll write about it.

I came across an option andThe importance of “time” and “volatility”I learned. This is an extremely lucky thing if I think about it now,If you don't understand volatility correctly and make use of it in investment and trading, your investment/trade results must improveI think so.

Often, “volatility has been high recently” or “the volatility has been much lower, so isn't it about time stocks plummet?” Don't you hear the phrase?
Surprisingly, I think there are quite a few people who use the words mullet or volatility in their atmosphere without accurate knowledge or recognition of mullet.

So, albeit at my level of knowledge, I'm going to write about volatility.

There are several types of volatility, and each one is calculated in a different way and used differently. principallyThree things: “historical volatility (historical volatility),” “implied volatility (implied volatility),” and “realised volatility (realised volatility)”There is. These are important for traders and investors to assess market risks and price movements.

Historical volatility is volatility calculated based on historical price data.
Specifically, the standard deviation of prices for a certain period of time (for example, 30 days) is calculated and converted to an annual rate. Since it is based on past data, it is useful for grasping market movements and trends so far.

However, since it is only past data, the disadvantage is that there is a limit to future predictions.

In the chart,ATR (Average True Range)I have adopted this HV way of thinking, and so have I.“ATR trend line”It is used to determine uptrends and downtrends on long-term charts, and to determine breakpoints where large price movements may occur.

Implied VolatilityPredicting future price changes calculated backwards from the options marketIt is.
Based on option prices, it shows how market participants view future volatility, and it is calculated using option price models such as the Black-Scholes model, for example.
If implied volatility is high, it is predicted that future price fluctuations will be large, and if it is low, price fluctuations are expected to be small.

This is an important point of view.
I explained it earlierHistorical Volatility calculates volatility from past price movementsI didImplied Volatility is predicted volatility calculated from future (up to SQ date) option pricesThat's it.

In terms of weather, while Historical Volatility determines that an umbrella is necessary from current situations and past data such as “it's raining now” and “swallows are flying low, so it seems like it's raining,” Implied Volatility predicts that “it hasn't rained yet, but many people walking around the city have umbrellas, so it's likely to rain today” and make a decision to bring an umbrella... Can't you imagine it somehow?

Historical volatility is a pattern analysis that predicts current situations and past cases, and implied volatility means future predictions for market participants. It's not about which one is effective,There are situations where we are both good at it, so it's important to use them properlyIt is.
However, what we investors call “volatility”It usually refers to Implied Volatility。

What is particularly famous is the “VIX (Fear Index),” which is calculated based on the Implied Volatility of the S&P 500 index option and represents a sense of market anxiety.
The Japanese version is”Nikkei Average VI” Right.

The Nikkei Average VI is an average of implied volatility in each recent and future Nikkei 225 option using calculation logic. In other words, it is the average value of future volatility considered by investors trading Nikkei 225 options.
Implied volatility is expressed as IV, and VI of Nikkei Average VI is VI of Volatility Index. it's a bit confusing lol

Volatility is volatility based on actual observed price movements.
It's similar to Historical Volatility, but it often uses shorter periods of data. For example, we measure price fluctuations in detailed time units using short-term data such as 1 minute or 5 minute time frames. Since it reflects real-time market trends, it is very useful for short-term trading and risk management.

However, I don't use this RV at all. There are 3 types of volatility... A degree of awareness is fine.

I feel like this timeThere is a big difference between HV and IV even when it comes to mulletI wrote that.
IV is familiar to option traders, and this learning cannot be avoided, but in fact, HV is also important in chart analysis. and“Is volatility high or low right now?” “What number does high mean?” “How do you change your trading tactics when it's high and when it's low?” is importantIt becomes.

Today, the Nikkei average was +150 yen compared to the previous day.
If you think about this in terms of volatility, how would you judge this? Even if it's a small movement today, how can today's +150 yen be determined if it was moving 400 yen or more last week compared to the previous day for 5 consecutive days? There was almost no movement today, I feel like it was a day with low levels of turbulence...

In this way, judging stock prices means that we have to be aware of the volatility at that time and the rate of change. I can't determine how +150 yen is in absolute terms.

Basically, I don't use anomalies very often, and even when using them as a reference, I always say that if you invest and trade anomalies or seasonals as the main ones, you will fail... is because anomalies don't take volatility into account at all. Not only that, it also ignores trends, so that's not true unless it's a strong anomaly where bias still exists even if trends and volatility are ignored...

Even with chart tactics, considerations that ignore volatility and volatility fluctuation rates will inevitably be less accurate. Even at a speed where you can stop as soon as you step on the brakes on a normal road surface, if it snows and you're not wearing a chain, it slips and won't stop even if you step on the brakes. What is more important than speed at that time is the weather and road surface conditions.

I've been telling this story all the time, so if you can think about understanding volatility and making use of it in investments and trades, there is also an advantage that you won't be inclined to useless investment tactics and methods.The tactics you take when volatility is rising and the tactics you take when volatility is falling are completely differentThat's it.

Next, let's think about the relationship between volatility and risk, and think about using volatility practically.