Volatility Analysis
stocks, that is, $2047. Therefore, depending on the situation, different measures of
volatility afford the practitioner different interpretations of price behavior.
Figure 21.8 depicts the approximate rate of change in the daily Gold prices. We
notice that from June 2011, the trend rate increases from approximately $3.80 per
day to $10.30 per day. This new trend rate increases the average maximum amount
of price change over approximately similar durations, reflecting the increase in the po-
tential underlying volatility in Gold, with respect to the second measure of volatility.
Figure 21.9 depicts the underlying angular symmetry in 3M Co., indicating
a constant rate of change. We observe that from about September 2011, the
trend rate increases to a new higher constant rate of change. This increases the
average maximum amount of price change over approximately similar dura-
tions, reflecting the increase in the potential underlying volatility in 3M Co.,
with respect to the second measure of volatility. Notice price approaching an
uptrend line at point X, where prices may experience potential resistance from
an overbought angular perspective. This is further confirmed by the bearish ris-
ing wedge formation.(3) The Third Measure of Volatility: The number of
price fluctuations over equal durations
The third measure of volatility is characterized by the number of price fluctuations
over equal durations. In Figure 21.10, we see three trends with varying amounts
of price fluctuation. The greater the fluctuations, the more volatile the trend is
expected to be over the same duration. Notice that all three trends have, over the
same duration:■ (^) The same rate of change in price
■ (^) The same maximum price change
figure 21.10 Increase in Price Fluctuations over Equal Durations Indicating Potential
Rise in Volatility.