Evolving Volatility Levels
Beyond statistical analysis of volatility and development of indicators like Bollinger Bands, specific patterns evolve that reflect growing or shrinking volatility. Whereas Bollinger Bands might be thought of as a trend-based form of probability matrix, these changing trend characteristics are more reliable for anticipating changing volatility.
A broadening price formation signals increasing volatility. As the breadth of trading expands, so does the likelihood of other volatile signals, such as price gaps. For example, Figure 13.1 shows a breadth of trading broadening over nine months, from June, 2013 through February, 2014.
Figure 13.1 Broadening breadth of trading (Chart courtesy of StockCharts.com)
In this example, ...
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