Historical Volatility

Historical Volatility measures the dispersion of an instrument's returns by taking the standard deviation of logarithmic close-to-close changes over a rolling window and annualizing the result, plotted as a single percentage line. Traders track it to classify quiet versus active regimes, to size positions consistently, and to compare realized movement against what options imply.

This build is the standard raw close-to-close calculation: each bar's log return feeds a sample standard deviation over a 10-bar window, scaled by the square root of 252 periods per year by default, so the line reads directly as an annualized percentage.

How to Trade the Historical Volatility?

• HV low versus its own history: a quiet regime; long compressions often precede expansion.
• HV high versus its own history: an active regime; wider stops and smaller sizes keep risk per trade comparable.
• HV as a sizing denominator: scaling risk budgets by the current reading evens exposure across symbols.
• HV versus implied volatility: the spread between implied and realized frames whether option premium is rich or cheap.

The reading is direction-blind and normal levels differ across markets, so compare it with the same symbol's history rather than fixed thresholds.

Historical Volatility Settings

• Length (default 10): the lookback for the standard deviation of close-to-close log returns. Short windows track the regime closely but jump on every large return; longer ones are steadier but slower.
• Annualize (default on): scales per-bar volatility to an annual figure by multiplying by the square root of the periods per year.
• Periods Per Year (default 252): the annualization basis — 252 for daily bars, 52 for weekly, 12 for monthly.

Frequently Asked Questions

Why log returns instead of simple percentage changes?

Because annualization multiplies by the square root of time, and that arithmetic is only exact when period returns sum cleanly — which log returns do. They are also the convention behind published volatility figures, so the output lines up with quoted numbers.

How does Historical Volatility differ from ATR?

ATR averages each bar's range in price units, intrabar travel included. Historical Volatility works on close-to-close returns, an annualized percentage that ignores intrabar action but catches gaps. ATR suits stop distances; HV suits cross-symbol and options work.

Why does the line sometimes jump or step down abruptly?

Every bar in the short window counts equally: when an outsized return enters the 10-bar sample the line leaps, and when it ages out the line steps back down though nothing happened on the bar. Lengthening the window smooths these entry and exit effects at the cost of responsiveness.