The Basics: Measuring Chart Volatility The math is
but the resulting procedure is something we can easily DO.
Open up two independent tabs: a chart
The same formula for Rate Of
Return can give the amount of Up - And - Down variation within
one year; just measure top-to-bottom at the end rather than
- Step One: draw in a red dotted reference line just
touching the red EMA200 twice.
- Step Two: draw in another (blue) line parallel to it.
- Step Three: Pull that line up so it just touches the
top of the jumping and pull another one down to just touch
the bottoms during a normal year. (Ignore COVID for now.)
Step Four: Reading the cursor position in the gray area at the
bottom of the plot, measure the top and the bottom lines at ANY
time on the plot and
plug them into the formula assuming one year and
- The top line measures $39.47 in that gray area and the
bottom line is $33.59 at the right hand side (now).
- Result is a volatility of
- The actual dollar volatililty is 39.47$ minus 33.59$.
- Percent calculated is dollar volatility /
N.B. if one measures the Rate Of Return we get
9%/yr for this particular stock; ZLB.TO. Thus it jumps up and down
by about twice the growth each year; and we need to decide whether
entering now will be better than waiting.
ZLB.TO means "Low Beta", which is also a measure of
jumpyness. The doubling-time is a little over eight years.
Its reliability is very good compared to most single stocks.
Here is how to enter the numbers above, with the corresponding date where they were measured:
The program calculates the mid-point, along the green line shown below, and
projects it to the current date (trend). Below that projection the volatility is
shown, first as a percentage relative to the green line and then as the number of
years it takes the green line to climb from bottom to top of the trend:
This gives us something to go on when deciding whether to buy it.
The most one can gain by waiting is half of the volatility, or 0.9 yr