Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

Comparing Daily Range Volatility in SP500 and Dow Jones

Wed, Feb 22, 11:31 AM ET, by Corey Rosenbloom

While there are plenty of methods to assess the volatility environment of a market, one of the simplest tactics is to measure the daily range.

Let’s take a look at the pure daily range of the S&P 500 and Dow Jones index through major up and down periods over the last few years.

Here’s the S&P 500:

Click for full-size image.

The custom indicator at the bottom subtracts the low of the day from the high of the day, which gives us the point spread or range of the day.

For example, if the S&P 500 opened at 1,000 which was the low of the session and formed a high of the day at 1,010, then the daily range would be 10 points.

This time of simple calculation does not take into account the open or close (unless those values happened to be the absolute high or low of the session) and does not count any gaps in its calculation.

What can we learn from a chart like this and why is it important?

First, volatility – or range – tends to cycle from periods of high volatility to low volatility.

Stated differently, periods of low volatility often break into periods of high volatility, and vice-versa.

Second, there’s a strong correlation between periods of high volatility (large daily range) and declines in the market – such as the periods I’ve highlighted above.

The opposite is also true – periods of low volatility tend to be correlated with steady or lengthy rises in the market.

There’s something to be said about that – we tend to be confident and calm during periods of bullish rallies and then panic or get emotional during periods of sharp decline.

This sort of psychology reveals itself in part via the daily range (or other volatility measures).

Third, we can see periods during a “market collapse” where volatility increases very sharply, and then steadily declines as price forms a base and begins to rally.

The two recent examples are the “Flash Crash” of May 2010 and the “August Collapse” of 2011.

Both cases began with an initial price plunge (surge in volatility) and then ended with a basing or consolidation period as prices stabilized before resuming the dominant uptrends.

For reference, over the last three years, a daily range of 30 points in the S&P 500 has been the dividing line between abnormally high volatility in the context of a market decline and otherwise stable rising trends.

During the recent rise period in 2012, the daily S&P 500 range has been under 20 points per day, with some days registering under 10 points.

That clues us in that a cycle of high volatility could be developing in the future.

The picture is similar – and of course point values different – in the Dow Jones Index:

We see the same initial spikes in Daily Range which then give way to reduced range as price stabilizes after an initial surge in volatility (and ‘collapse’ in price).

The level that divides high volatility daily range from low volatility range in the Dow seems to be around 200 to 300 points.

During 2012, the Dow has consistently registered near or under 100 points per day for a high to low range.

Take a further look at these charts and the cycles of volatility in terms of the index daily range values and feel free to share additional insights you find.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter: http://twitter.com/afraidtotrade

Corey's new book The Complete Trading Course (Wiley Finance) is now available!

blog.afraidtotrade.com


SDI Glossary: "price" Definition
SDI Glossary: "Finance" Definition
This Article's Word Cloud:   Corey   During   Jones   This   absolute   adsbygoogle   afraidtotrade   been   between   calculation   calm   collapse   cycle   daily   decline   declines   does   during   formed   from   give   high   index   initial   into   last   look   market   over   period   periods   point   points   price   range   recent   session   surge   take   tend   that   then   there   these   under   values   volatility   which   with   years

| More

Emini Keeps the Bull Market Going Dec 6 Update
Tue, Dec 6, 12:51 PM ET, by Corey Rosenbloom

Today keep the bullish pressure going – so far – on the bounce up away ...

Down Drops the Dollar on Divergences into Fibonacci Target
Mon, Dec 5, 3:41 PM ET, by Corey Rosenbloom

The S&P 500 isn’t the only market you can track using intraday charts and Fibonacci ...

New Lows after Surge for Nat Gas 3x DGAZ
Mon, Dec 5, 12:41 PM ET, by Corey Rosenbloom

Triple-Leveraged ETFs are the wild-west of the short-term trading landscape. You can triple your gains ...

New Lows for Nat Gas 3x DGAZ
Mon, Dec 5, 12:21 PM ET, by Corey Rosenbloom

Triple-Leveraged ETFs are the wild-west of the short-term trading landscape. You can triple your gains ...

Rally off Fibonacci Grid Support Emini Update Dec 5
Mon, Dec 5, 12:11 PM ET, by Corey Rosenbloom

It’s always exciting when price does exactly what it should! Here we’re seeing a rally ...

December 2 Emini Fibonacci Retracement Grid Update
Fri, Dec 2, 1:31 PM ET, by Corey Rosenbloom

After an initial bounce just above our official Emini Fibonacci Target, price appears to be ...

December Downward Emini Retracement Takes Over
Thu, Dec 1, 2:31 PM ET, by Corey Rosenbloom

I’m thrilled to know that logic prevails and price is doing what it “should” at ...

Three Steps to a Trade a Collapse Lesson from Dryships DRYS and Qualcomm QCOM
Wed, Nov 30, 12:41 PM ET, by Corey Rosenbloom

I’m still surprised with how quickly Dryships (DRYS) surged from $5.00 to $100.00 but even ...

Our Make or Break Emini Level Update Nov 30
Wed, Nov 30, 11:51 AM ET, by Corey Rosenbloom

I’m not sure the buyers (bulls) know the meaning of a “pullback” but here we ...

Microsoft MSFT Gently Nudges to New High
Tue, Nov 29, 3:11 PM ET, by Corey Rosenbloom

Software giant Microsoft (MSFT) continue to be a “strong stock getting stronger” as evidenced by ...

Resilient Bulls Emini Fibonacci Grid Update Nov 29
Tue, Nov 29, 2:11 PM ET, by Corey Rosenbloom

I’m not sure the buyers (bulls) know the meaning of a “pullback” but here we ...

QuadMarket Holiday Trend Update Nov 28
Mon, Nov 28, 2:41 PM ET, by Corey Rosenbloom

We’ve seen all markets trend strongly after the US Election and Thanksgiving holiday November events. ...

Back to a Key Pivot Point for Swing Trading Apple AAPL Nov 28
Mon, Nov 28, 12:31 PM ET, by Corey Rosenbloom

Does Apple (AAPL) go higher or lower from $110? Build your next swing trade off ...

Finally Pulling Back from the Highs Emini Update Nov 28
Mon, Nov 28, 12:21 PM ET, by Corey Rosenbloom

Wait, the market can actually go DOWN? I had no idea! If you started your ...

The Emini Holiday Creep Continues Nov 23
Wed, Nov 23, 12:51 PM ET, by Corey Rosenbloom

Breakout? Pullback? Extended Uptrend getting more extended? Divergent Reversal? Let’s plan! Here’s today’s updated Emini ...

US Steel X Surges through Breakout Highs Nov 22
Tue, Nov 22, 2:51 PM ET, by Corey Rosenbloom

Expectations for future “stimulus” and transportation/spending projects from the new Republican administration sent raw materials ...

Yet Another Emini Divergence at the New Highs Nov 22
Tue, Nov 22, 12:21 PM ET, by Corey Rosenbloom

Breakout? Pullback? Extended Uptrend getting more extended? Divergent Reversal? Let’s plan! Here’s today’s updated Emini ...

Emini Breaks on Through to the Other Side Nov 21
Mon, Nov 21, 2:51 PM ET, by Corey Rosenbloom

Breakout? Pullback? Extended Uptrend getting more extended? Let’s plan! Here’s today’s updated Emini (@ES) trading ...

Post-Election Risk Trending Up in Treasuries and the Euro, Down in U.S. Stocks
Mon, Nov 21, 8:11 AM ET, by Bill Luby

You can always tell when the crowd gets long the VIX and ends up on ...

Emini Plays Again at the Highs Nov 18
Fri, Nov 18, 1:11 PM ET, by Corey Rosenbloom

Will it – or won’t it – break through to new highs? Or will we ...

From Speculative Start to Crushing Collapse in DRYS
Thu, Nov 17, 2:41 PM ET, by Corey Rosenbloom

Well that was exciting while it lasted – and it didn’t last long. Shares in ...

Straight Back to the Highs Nov 17 Emini Update
Thu, Nov 17, 2:21 PM ET, by Corey Rosenbloom

We’re back into the 2,180 prior high target and plotting our next move along with ...

Did You Ever Think Dry Could Go this High DRYS
Wed, Nov 16, 12:21 PM ET, by Corey Rosenbloom

The talk of the trading community this week is the impossible, raging rally in Dry ...

Coming Down from the Highs Emini Update Nov 16
Wed, Nov 16, 12:11 PM ET, by Corey Rosenbloom

Though not stellar so far, price is pulling down away from the 2,180 @ES pivot. ...

Might the Financial Stock Surge Stall Today after Huge Rally
Tue, Nov 15, 12:31 PM ET, by Corey Rosenbloom

After the surprise US Election outcome, we’re seeing a flood of money into Financials, presumably ...

Still Hanging Out at the Highs Emini Update Nov 15
Tue, Nov 15, 12:21 PM ET, by Corey Rosenbloom

We’re still seeing price trade at the highs after a sideways pullback instead of a ...

Radical Reversal for Dry Ships DRYS with Bullish Surge
Mon, Nov 14, 3:51 PM ET, by Corey Rosenbloom

It’s not often you see a stock go from beneath $5.00 to $40.00 in three ...

Range Trading at the Emini Highs November 14
Mon, Nov 14, 1:31 PM ET, by Corey Rosenbloom

Our divergences at the high continue to stall the market just ahead of a key ...

Ten Year Treasuries Return to Higher Timeframe Trendline
Fri, Nov 11, 3:11 PM ET, by Corey Rosenbloom

After Tuesday’s US Election, we’ve seen rapid movement in the intermarket landscape. Let’s focus on ...

Another Divergence Reversal at the Emini Highs Nov 11
Fri, Nov 11, 12:21 PM ET, by Corey Rosenbloom

A key pattern – with visual negative divergences – is forming at the retest highs. ...

Emini Divergent Reversal at the Highs Nov 10
Thu, Nov 10, 12:21 PM ET, by Corey Rosenbloom

Additional bullish price action after the election sent us to our prior high target into ...

LABU 3x Biotechs Surges with Bullish Reversal Breakout
Wed, Nov 9, 4:31 PM ET, by Corey Rosenbloom

Triple-Leveraged ETFs offer chances for instant profit – or loss – depending on the outcome. ...

With a Surprise Trump Triumph the Emini Surge Continues Nov 9
Wed, Nov 9, 12:11 PM ET, by Corey Rosenbloom

Markets like certainty – even if that certainty comes at a big surprise to most ...

Top VIX Crushes in History
Tue, Nov 8, 1:21 PM ET, by Bill Luby

Yesterday's sharp downward move in the VIX gave me a reason to tweet that the ...

The Emini Election Day Surge Simply Continues
Tue, Nov 8, 1:21 PM ET, by Corey Rosenbloom

It’s Election Day in the USA and the stock market rally continues in full force! ...

Four Rapid Money Flow Reversals before the Big Election
Mon, Nov 7, 3:41 PM ET, by Corey Rosenbloom

Before Americans go to the polls and select the next president, we’re seeing sudden reversals ...

SPX Sigma and Volatility Chart for November
Mon, Nov 7, 12:31 PM ET, by Corey Rosenbloom

Price cycles between alternating periods of high and low volatility, and if we can assess ...

The Nov 7 Expected Emini Bounce Surges Higher
Mon, Nov 7, 12:11 PM ET, by Corey Rosenbloom

Here we go – after a pullback exactly to our 2,080 target, buyers continued expected ...

The Nov 6 Expected Emini Bounce Surges Higher
Mon, Nov 7, 11:51 AM ET, by Corey Rosenbloom

Here we go – after a pullback exactly to our 2,080 target, buyers continued expected ...

VIX Sets New Record with Nine Up Days in a Row
Mon, Nov 7, 8:11 AM ET, by Bill Luby

Over the course of the past few days I have been tracking the slow grind ...

How to Play a Volatility Spike (Guest Columnist at Barron's)
Sun, Nov 6, 6:11 PM ET, by Bill Luby

Yesterday, I was pleased to once again have an opportunity to pen a guest column ...

The Expected Emini Bounce Materalizes Today
Fri, Nov 4, 1:21 PM ET, by Corey Rosenbloom

Here we go – after a pullback exactly to our 2,080 target, buyers are creating ...

The Dreaded Divergence and Three Push Precede Facebook Fall
Thu, Nov 3, 12:11 PM ET, by Corey Rosenbloom

Price often gives visual signals before reversing, even if in real-time it looks very surprising. ...

VIX Median Reversion and Five-Year Moving Averages
Wed, Nov 2, 1:51 PM ET, by Bill Luby

When people talk about the VIX you often hear them refer to mean reversion, which ...

A Quick Lesson in Divergent Reversals for the US Dollar
Tue, Nov 1, 12:11 PM ET, by Corey Rosenbloom

Many traders love reversal patterns but so many traders get trapped in false reversals in ...

Updating Apple AAPL into Critical Target Support
Tue, Nov 1, 11:51 AM ET, by Corey Rosenbloom

Will Apple (AAPL) shares hold support at the current pivot or will sellers break price ...

Down to the Lows You Go Emini Morning Update Nov 1
Tue, Nov 1, 11:31 AM ET, by Corey Rosenbloom

We continue using our key Fibonacci Grid for the Emini, but we may see a ...

Down Goes Crude Oil on a Mirror Image Rounded Reversal
Mon, Oct 31, 1:11 PM ET, by Corey Rosenbloom

The “Rounded Reversal” or “Mirror Image Foldback” is one of my favorite chart patterns yet ...

Halloween Emini Fibonacci Grid Daily Update
Mon, Oct 31, 12:51 PM ET, by Corey Rosenbloom

You’re truly missing out if you’re not bookmarking and following our morning Emini Fibonacci Grid. ...

Take a Look at that Emini Fibonacci Reversal Today Oct 27
Thu, Oct 27, 12:41 PM ET, by Corey Rosenbloom

You’re truly missing out if you’re not bookmarking and following our morning Emini Fibonacci Grid. ...

  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

Comparing Daily Range Volatility in SP500 and Dow Jones | Self Directed Investor | Copyright © 2008 - 2016, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of serious individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.