Historical Volatility (HV)

Historical Volatility (HV) is a statistical measure of the dispersion of returns for a given security over a specified period. It quantifies how much the price has fluctuated in the past, expressed as an annualized percentage. Higher HV means greater price swings, while lower HV indicates calmer, more stable price action.

Historical Volatility is calculated as the annualized standard deviation of logarithmic returns:

1. Log Return = ln(Close[i] / Close[i-1])
2. StdDev = Standard Deviation of Log Returns over N periods
3. HV = StdDev * sqrt(252)   (annualization factor for daily data)

The annualization factor varies by timeframe: sqrt(252) for daily, sqrt(52) for weekly, sqrt(12) for monthly.

• Pure volatility measure — No directional bias, only measures magnitude of price swings
• Annualized output — Expressed as yearly percentage for cross-asset comparison
• Mean-reverting — Volatility tends to cycle between high and low periods
• Regime indicator — Helps identify calm vs. turbulent market periods

Buy signals

• HV drops to historically low levels (calm before a storm — prepare for breakout)
• HV starts rising from a low base while price trends up (healthy trend expansion)
• HV spike followed by decline (panic selling exhaustion)

Sell signals

• HV spikes to extreme levels (panic, often near climactic tops/bottoms)
• HV is very high and starts declining while price weakens (trend exhaustion)
• HV reaches multi-month highs (risk management — reduce position size)

| Parameter | Default | Description | |-----------|---------|-------------| | Period | 20 | Number of candles for standard deviation calculation |

| Condition | Description | |-----------|-------------| | HV(20) > 50 | High volatility (above 50% annualized) | | HV(20) < 15 | Low volatility (below 15% annualized) | | HV(20) cross_over 30 | Volatility expanding above 30% | | HV(20) cross_under 30 | Volatility contracting below 30% |

• HV is a lagging indicator — it tells you what happened, not what will happen
• Low HV periods often precede large moves — use as a breakout preparation signal
• Compare HV to implied volatility (if available) for options trading edge
• Use HV for position sizing: reduce size when HV is high, increase when low
• Typical HV ranges: stocks 15-30%, crypto 50-100%, forex 5-15%
• HV works well with Bollinger Bandwidth for confirming squeeze setups