Monday, November 30, 2009

Weekly Stock Market Volatility Continues to Wane

How much price movement can we expect during a trading week? As we can see from the chart above, that measure of volatility has been dropping steadily through 2009. The red line shows the average weekly high-low range, expressed as a percent, over the past 10 weeks. That average range now stands at 3.4%, down from about 10% early in the year.

Adapting to this lower volatility has been one of the great challenges of trading during 2009. As I noted back in May, daily average ranges fell below 2%, down from 4.5%. That level is now about 1.23%.

How far is the market likely to move in your favor? How far should your stop points be set? When are moves ripe for reversal? Knowing how markets are behaving in their volatility is just as important as knowing their directional tendencies.