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I came across this interesting little graphic in the NYT at the weekend and thought interesting little picture might see what the underlying article has to say.  To save you the trouble of reading it, the article is a little piece regarding volatility and the lack of movement in the S&P500. The concluding paragraph of the article is as follows –

Much of the downward volatility of the last three months came on speculation that a new recession might be starting. Moves upward, meanwhile, came when economic optimism rose. The high level of excess volatility could signal that the economy’s recent slow growth is due to change — but it is not clear what that change might be.

Here is a point I bang on about endlessly – volatility has no direction, volatility is not trend. It is the speed and magnitude of price movement over a given period of time. There is no such thing as downward volatility since volatility has no bias.

You can have periods of high volatility and strong trend and you can have periods of low volatility and strong trend. You can have any mix of volatility and trend that you care to imagine and this occurs because the two are not related. Trend  is a measure of the directionality of price measured by whatever means you want whereas volatility is the speed and magnitude of price movement irrespective of price direction.

As an example consider the chart below of the ASX200 – in recent times the periods of highest volatility have been the periods of strongest trend. Yet prior to that the market trended strongly with very little change in trend.


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