All language subtitles for 2. Degrees Of Volatility (Variance)

OK, welcome to The Matrix, the volatility matrix.

If you saw the movie The Matrix, that's a great movie.

The first one, the sequels can be debated.

That's up to you.

If you haven't seen the movies that you should.

Certainly the first one was terrific.

But the volatility, you can kind of think of it like a kind of a matrix where there's matching up between

the type or degrees of volatility and volatility, as we learn, can be abnormally low or abnormally

high.

Low, you know, just would typically be just before a turning point is coming.

And high would be the first big thrust of a new trend.

But you also need to consider are you when you're looking at that volatility, is something trending

or not trending already before of this low or high volatility starts coming into play?

So we're going to look at that kind of matrix between these four kind of concepts as far as putting

that all together.

And we can look at that graphically.

And we're going to break this down in great detail.

Looking at degrees of volatility, you may hear the term variance.

That's OK, too.

But, you know, so variance or volatility can be used interchangeably.

And we have these long, straight lines basically representing the high and the low.

So we're looking at the range of prices.

So that's volatility measures.

Look at as you're looking at ranges of pricing and you can see we have these different types of combinations

of variance or volatility and with or without trending.

So let's look at each of these in turn now.

So when you see low variance with trending, all right.

So there's very low volatility, but it is trending.

It's part of something that's already there.

So you would see it something being low variance would be very orderly.

Right.

There's not a lot of ups and downs and a lot of moving all over.

It's all very orderly and you can easily see the trend to so low variance with trending.

And this is a great opportunity to consider the best trade opportunity with the highest probability

for profit and loss, probability of loss of that.

And, you know, your reason for you're able to better able to predict the future price movement with

more confidence than with a high volatility security, because it's all nice and orderly, very low

volatility, and generally hold a low volatility with trending for longer periods of time, which can

help reduce trading fees or other types of fees to kind of let it ride a little bit because you're not

getting a lot of ups and downs.

It's all very orderly.

It's trending in a certain direction.

That trend could be either up or down.

By the way, this happens to be low variance with trending.

And as you can see, we're definitely an upward trend.

So if we bought earlier, we could feel confident that that trend is going to continue.

And that's all very orderly here.

For example.

Now, if we look at another way of looking at low variance without trending again, low variance, it's

going to be very orderly.

Again, you're not seeing real high highs and lows or anything like that and all mixed up.

It's all very orderly because that's the low volatility, low variance part, but it's moving sideways.

There's no real definite trend either up or down, you know, so you really don't know which way it's

going to go.

It's not real predictable at this point.

And you really shouldn't trade it because you don't know what's going.

You can't really try to use an indicator and really try to, you know, be a good, logical decision

around it, you know, so there's no basis for an expectation of gain.

You're you're almost a little more guessing at that point.

So it doesn't mean you can't trade.

I'm just saying look for better alternatives, right.

Is always better alternatives than trading into something that might be moving more sideways.

That's highly hard to predict.

But you can see very orderly moving sideways as low variance without trending.

Now, one thing you can see when you see the sideways move, when you're trying to see if something

is going to change, you can use your other indicators to kind of recognize when you may have a reversal

or maybe a breakaway gap or something that's going to establish a new a new trend.

But there's an exception when you're looking even at, let's say, volatility is is there still no trend

emerging?

But if the bars, the the whole trading range from high to low, start to contract or widen, that's

a powerful signal that a breakout or a new trend may be coming, although you don't know which direction

is happening, but unless you're using other tools like candlesticks and your other indicators.

But as that, if you have that overly low volatility, low variance without training, and then all

of a sudden you start to see the highs and lows start to contract, as you see in the example, the

circle here, that means that something might be happening.

We're now we're going to see a dramatic move in another direction, either up or down.

So watch for that contracting or it could be an expansion of the bars to either way, there's no it's

starting to get a little less orderly as far as the bar length.

So if we look at high volatility or high variance with trending, so there's a trend, but there's a

lot of variance within that trend and it's really not orderly at all.

Remember our our low variance with Trayning, how nice and smooth that law looked and nice just generally

marching up the mountain, so to speak.

Well, here there's a definite going upwards in that example, but it's all over the place as far as,

you know, the pricing.

So there's a trend, but it's not clear or possibly strong because it's so volatile now, you can trade

it.

It is a trend, right?

We want trade on trends, but increase volatility increases the potential for loss.

You know, so because you could be going up, it could reverse the news.

Just a lot of volatility with that.

But when you know that you're in a high variance with Trayning, you can trade that and then understand

and then adjust your settings on how you might place an order as far as what you're buying, how you're

buying it, and you can execute something that's called a stop loss order sooner, basically to stop

losses, setting a lower, you know, where you buy something and then you set a price level below it

to if it falls below that price, your platform is going to automatically sell it for you.

So you don't experience as deep a loss.

We're going to go all into that, by the way.

You know, in the order section, we're going to talk a lot about stop loss because it's very important

when you're trading securities.

But for now, just to understand that there's ways to get through something that's trending in a great

manner, but there might be a high volatility.

Again, the trend could be either upwards or downwards.

You're looking at it, you're seeing, but there's very volatile.

There's not much order to it at all.

And if you see like an established trading range with established support and resistance levels, looking

at the chart pattern type section, you know, where you can you can kind of buy and sell as you approach

each of those levels is still trending, but it's with more volatility as it moves in the direction

of the trend.

But it's kind of bouncing up and down and consistent support and resistance levels.

So you can kind of watch that.

But that's more of a trading on a chart pattern as opposed to trading on a volatility with trending

pattern.

But you can do it then.

Lastly, if we look at your high volatility or high variance without a trend, there's no established

trend and there's a lot of volatility, really a lot of price ranges, wide ranges and price movements

all over the place.

So it's not orderly at all, which makes it harder.

But also there's no trend.

So it's really hard to predict the next price move, particularly since there's no order to it and there's

really volatile up and down all over the place.

So it's hard to predict what will happen next.

Hard to use your indicator.

So what you should do is really don't trade it.

You look for better opportunities, you know, look for something that has some more of a trend to it,

whether it's with low volatility or high volatility.

At least you've got a trend and you can use your indicators and make better trades.

So don't trade high quality high without turning low for something better, something that's trending.

Alternatively, when you see this, one thing you could do is narrow the time frame down to like a smaller

time frame, an intraday time frame.

You'll see fifteen or sixteen minute bars, you know, and look for tradable swings to get in and out.

So if these bars that we're seeing here on the in the example are represent a full day of open and close

trading with as far as our range of highs and lows in Scyther, it might be some trends inside those

days.

And you're trading on a fifteen or 60 minute bar or even less than trading on something on a day type

thing.

So that's what day traders would do or swing traders.

Some folks are looking at these shorter time periods.

They could still trade a security they're interested in.

They just might need to get in and out faster.

When you're seeing high variance without trending and you're really looking at that point, not in overall

trends like this is representing here.

Each one is a high and low of a day.

You're looking inside each of those single day bars, trading within it and then getting out and closing

your positions.

So that's our matrix of the degrees of volatility or variance with and without trending.

And you can kind of get a feel for whether a reversal might be coming or if there's a strong trend or

a continuation or maybe we're just going sideways here.

And then we have some indicators that we're going to now learn about that.

Really help us to understand a little bit more about what's going on with volatility and some real good

ones to help us as far as actually making trading decisions on whether we want that to be a primary

indicator or maybe we're going to use some of these volatility indicators as a as a second or third

indicator to help confirm another trading indicator that we might be using from another lesson that

we've learned that can be real helpful when you're looking at volatile types of markets and then some

of the degree of that volatility or variance.