Some of the most commonly used tools to gauge rela๊tive levels of stock market volatility are the Cboe Volatility Index (VIX), the average true range (ATR), and Bollinger Bands. While traders and analysts rely on various indicators to track volatility and determine optimal exit or entry points for trades, these stand out because of their wide use.

Cboe Volatility Index (VIX)

The Cboe Volatility Index (VIX) is one of the most widely used volatility gauges. It is updated in 15-second intervals throughout the trading day and is computed using an option-pricing model. It reflects the current implied or expected volatility that is priced into a strip of short-term S&P 500 Index options.

ꦜBecause large institutions account for a significant portion of trading in S&P Index options, their volatility perceptions (as measured by VIX) are used by other traders to get a reading of likely market volatility in the days ahead.

The Cboe Volatility Index stays between 12 and 35 most of the time, but it has occasionally dropped into the single digits with rallies of more than 75. Generally, VIX values higher than 30 indicate increased volatility, while values in the low teens are indicative of low volatility.

Derivatives, such as futures and options, of VIX are actively traded. In addition, leveraged exchange-traded funds based on the volatility index—like the ProShares Ultra VIX Short-Term Futures ETF (UVXY) and its partner ProShares Short VIX Short-Term Futures E𓆉TF (SVXY)—exist🍰 as well.

Average True Range

The 澳洲幸运5官方开奖结果体彩网:average true range indicator was developed by J. Welles Wilder Jr. It is a technical chart🌳 indicator that can be applied to any stock, exchange-traded fund, forex pair, commodity, or futures contract. ATR calculates what Wilder called a "true range" and then creates the ATR as a 14-day exponential moving average (EMA) of the true range. The true range is found by using the highest value generated by one of three equations:

• True range = Current day's high minus the current day's low
• True range = Current day's high minus the previous day's close
• True range = Previous day's close minus the current day's low

The ATR is then created as an exponential moving average (EMA) computed using the highest value found when the three equations are solved. A larger ATR indicates higher trading ranges and, thus, increased volatility.💛 Low readings from the ATR are generally consistent with periods of quiet or uneventful trading.

Bollinger Bands

澳洲幸运5官方开奖结果体彩网:Bollinger Bands is another charter indicator and consists of two lines or bands, which are two standard deviations above and below the 20🐽-day moving average. The moving average appears as a line between the upper and lower bands. A widening of the bands shows increased volatility and a narrowing of the bands shows decreased volatility. Like ATR, Bollinger Bands can be applied to any stock or commodities chart.

The Bottom Line

Market volatility goes through cycles of highs and lows. Analysts watch the direction of market movement when there is a sharp increase in volatility as a possible indication of a future market trend. While♔ VIX is useful in seeing overall levels of volatility of the S&P 500 Index, ATR and Bollinger Bands can be applied to stocks, commodities, forex, indexes, or futures using any number of charting applications.