Implied Volatility and Historical Volatility

2024년 2월 11일

This indicator provides a visualization of two different volatility measures, aiding in understanding market perceptions and actual price movements. Remember to combine it with other technical analysis tools and risk management strategies for informed trading decisions. The two measures of volatility:

Implied Volatility: Based on the standard deviation of recent price changes, it represents the market's expectation of future volatility.
Historical Volatility: Measured by the daily high-low range as a percentage of the closing price, it reflects the actual volatility experienced recently. It is intended to be used along side the Mean and Standard Deviation Lines indicator.

Inputs:

Period (Days): Defines the number of past bars used to calculate both types of volatility.
Calculations:

Interpretation:

Comparing the lines: Divergence between the lines can indicate potential mispricing:
If the Implied Volatility is higher than the Historical Volatility, the market might be overestimating future volatility.
Conversely, if the Implied Volatility is lower, the market might be underestimating future volatility.
Monitoring trends: Track changes in both lines over time to identify potential shifts in volatility expectations or actual market behavior.
Limitations:

Assumes normality in price distribution, which may not always hold true.
Historical Volatility only reflects past behavior, not future expectations.
Consider other factors like market sentiment and news events for comprehensive volatility analysis.

2024년 3월 17일

릴리즈 노트

updated the math. This indicator is a work in progress so be careful when you use it.

2024년 5월 4일

릴리즈 노트

changed calculation and default period length.

2024년 7월 2일

릴리즈 노트

redefined implied volatility, the old implied volatility is now implied variance of closing prices. Added copyright notice and cleaned up the code.

2024년 7월 4일

릴리즈 노트

Implied variance was wrong the correct name is Expected Relative Volatility which measures the width of the bounds relative to previous close.
Historical Volatility is now more correctly called Historical Volatility Estimator.

2024년 8월 15일

릴리즈 노트

Cleaned things up to keep the indicator consistent with its name, added Historical volatility estimation and changed the default period to 30 to show the approximate 30 day volatilities when used on daily bars. Historical Volatility calculation assumes volatility remains stationary for a year so the figure is annualized. Implied volatility is for the day.

2024년 10월 18일

릴리즈 노트

Used built-in functions to calculate sample mean and standard deviation.

2024년 10월 18일

릴리즈 노트

corrected the math.

2024년 10월 31일

릴리즈 노트

updated license to the Creative Commons BY-NC-ND 4.0