Author Bio

Volatility has been at the top of many trader’s minds of late. It’s hard to miss the references to the VIX on CNBC and elsewhere in the media. I heard someone suggest that volatility is an asset class of its own now. Volatility is derivative, of course, so that can’t actually be the case, but it does speak to the fixation there is in the market at this point.

The amount of chatter, though, makes me wonder if people have forgotten what things were like in 2008. I mean look at where the VIX is now compared to where it was three years ago. It’s not even close. Heck, it didn’t even get above the peak from 2010 at its highest levels during Q3.

Of course the VIX, which is a measure of the implied volatility of index options, is only one way to look at volatility. We can also look at price-specific volatility.

The DAX has been at the heart of the risk on/off ups and downs of the global markets through this whole sovereign debt crisis, so it’s worth taking a look at that index. The chart below shows the weekly performance going back to late 2008.

Turn your attention to the two sub-plots.

The top (blue) one measures the width of the Bollinger Bands relative to the 20-week average. This is the Band Width Indicator (BWI), which measure the volatility of closing prices. Notice how it’s gotten above 50 recently, which is quite high, but not quite up to the level reached late in 2008. It’s also started turning down, which likely means we’ve seen the peak.

The bottom (green) plot is Normalized Average True Range (N-ATR), which evaluates volatility in terms of ranges. We can see that N-ATR has been rising over the last few months, though remains well below the late-2008 peak. It may yet keep going a bit further because of the lag effect, but it’s going to take some very wide ranges to revisit the old highs.

What we have to keep in mind is that volatility tends to max out during the bottoming processes. While I can easily see the DAX falling back down toward its lows for the year, and there probably will be a lot of back and forth action, my feeling right now is that a major downside extension at this stage isn’t in the cards. That gives the dollar room rally up again, but I’m not yet sure whether we’re seeing a bottoming pattern there, or just a consolidation in the bigger downtrend.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Author Bio

The ghosts and goblins were out in full sight this week, but thankfully they didn’t scare the currency markets. While we nibbled on Reese’s Peanut Butter Cups, carved Jack-o-Lanterns and even shoveled after a record-breaking snowstorm, we read the world’s top financial headlines.

The biggest treat of the week was the European Union reaching a debt deal. After discussions lasted well into the early hours Oct. 27, eurozone leaders said they had reached an agreement for banks to take voluntary 50 percent losses on Greek bonds. The move is part of a plan aimed at reducing the Greek debt to 120 percent of gross domestic product by 2020 (its GDP is currently at 160 percent). While this is certainly good news for Europe, some financial experts believe leaders have waited too long for this solution as millions of Europeans have been out of work and many countries have been slipping into recession. What could bring a healthy burst of optimism to the world markets is Asia’s stocks. The Asian markets last week flexed their financial muscles with stocks climbing positively. That positivity has leaped the Pacific Ocean to the U.S.: economic forecasts from the government, financial analysts and academics are showing signs that the U.S. economy will be booming by 2020—some good news after recent years of sluggishness. Among the factors for the thrust is housing prices, which will rise sharply. For those who may want to become the next Daddy Warbucks, Forbes has issued some tips that can keep your wallets fat and $1,000 richer in the new year. Instead of surrendering the green stuff for personal expenses left and right as if you’re Hollywood’s elite, pack a lunch instead of buying each day, clip coupons, maximize your credit cards and set—and maintain—budgets.

• The Global Stock Market Rally Continues In Asia, Business Insider, Oct. 28, 2011
• All or nothing in Europe, Forex Crunch, Oct. 28, 2011
• EU Reaches Debt Deal, But Challenges Lie Ahead, NPR, Oct. 27, 2011
• EU talks stutter-step toward an agreement, USA Today, Oct. 26, 2011
• How To Be $1,000 Richer By 2012, Forbes, Oct. 25, 2011
• Why the US economy will be booming by 2020 , MSNBC, Oct. 24, 2011

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.