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Sounds good....but what is the Pearson correlation coefficient of ATR vs.
historic volatility ?
Note: good ideas have a sound research basis.
> -----Original Message-----
> From: Mark Johnson [mailto:janitor@xxxxxxxxxxxx]
> Sent: Sunday, May 12, 2002 2:15 PM
> To: omega-list@xxxxxxxxxx
> Subject: Independent Indicators: historical volatility
>
>
> To construct an orthogonal set of basis vectors
> that span the space of technical indicators,
> I think it would be necessary to include the
> indicator "Historical Volatility", widely
> employed by equity options traders:
>
> Let Series C[j] be the set of Closing prices
> Let Series y[j] = ln(C[j+1]) - ln(C[j])
> Let ave_y = mean value of the y[] series over the past n bars
> Then HV[j] = sqrt( SUM(y - ave_y) / (n-1) )
>
> Notice that HV is a function of Price RATIOS since it
> deals with differences of logarithms of price.
> [recall ln(a/b) = ln(a) - ln(b)]. This is unique;
> almost all other indicators (e.g. TrueRange, Random
> Walk Index, etc) use raw prices rather than price ratios.
>
> Also notice that HV is *not* a function of the open
> price or the high price or the low price; it only operates
> upon closes.
>
>
>
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