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Unusual Volatility Alert

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    Volatility is one of the most important things to keep an eye on in trading. In short, it’s a measure of price movement – the drops and rises an instrument has. When volatility is high, there are more opportunities for a trade, and the returns are higher in magnitude. What this means is that it’s easier to hit it big, but it’s important to keep in mind that losses are magnified just as much as profits and therefore it is equally easier to incur big losses. 

    Still, most traders prefer volatile markets. There are different ways to identify volatile markets. First, some instruments are inherently more volatile than others. An easy example would be comparing a less-volatile EURUSD to a much more volatile BTCUSD.

    Here is what they look like on the same chart, scaled relative to their price at the beginning of last year:

    Can you tell which is which? Yes, the huge moves of Bitcoin completely dwarf a relatively “calm” pair like EURUSD. Bitcoin is a lot more volatile, and is probably one of the most volatile instruments you can trade.

    But trading instruments that are volatile all the time might not be the thing for everyone – huge unpredictable BTCUSD moves can wipe out your whole account, especially if you are trading with leverage, magnifying the moves even more. It may be more beneficial to scope out relatively predictable instruments for more volatile periods, which can indicate a market regime shift, a major event, or a general increased interest in the instrument, which can be good reasons to get in on the action. 

    With the PsyQuation Volatility market alert, you will be alerted when an instrument is starting to be unusually volatile. This means that you can be one of the first people to take advantage of the new market regime.

    The alert runs once a day and compares today’s 30-day volatility to all the 30-day volatilities in the previous year, and it is triggered when it is higher than your chosen percentage of days in the previous year. This may seem overwhelming, so let’s break it down. 

    First of all, we measure long-term volatility, so this alert will not be suitable for day traders. We define 30-day volatility as a standard deviation of returns based on EOD prices in the previous 30 trading days. This volatility figure is computed for every trading day, and if the latest figure is higher than 30-day volatilities in, let’s say, 95% of trading days in the previous year, the alert is triggered. You can choose the specific percentage when setting up the alert. 

    What this means in practice, is that you will be alerted when daily volatility (not taking into account intraday moves) becomes unusual for this particular instrument. Keep in mind that this measure of volatility changes quite slowly and the alert should be used for detecting large-scale market regime changes, not sudden spikes in volatility.

For a detailed tutorial on setting up and using the market alerts, as well as picking the right parameters, check out our tutorial.


Check out the Market Alerts suite on our website.

Michael, Vlad, Thomas Hobbs & the Leviathan Market Streak Alert