Volatility is one aspect of market behavior that is always important to watch. It comes in a few different forms ( implied volatility and historical volatility) and can be analyzed from a variety of perspectives.
One of the basic things to know about volatility — in terms of the amount of price movement in a particular market — is the time period in question. It is one thing to know a market gained 20 percent, but it’s something else to know whether it made this move in two weeks or one year.
When it comes to price charts, the simplest unit of time to consider is one bar, whether that reflects one hour, one day or one week. As a result, traders often study a market’s range during a price bar, or the difference between its high and low. This measures the amount of intraday price movement; true range measures the degree of movement from bar to bar (period to period).
We studied exceptionally large daily bars in the euro/U.S. dollar currency pair (EUR/USD) over the past five and a half years (since the euro’s inception in 1999) to see whether recognizable price patterns developed after wide range bars (WRBs) occurred.
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