Historical Volatility (HV) indicator

The Historical Volatility (HV) indicator is a statistical measure that calculates the volatility of a financial instrument over a specific period of time. It is used by traders and investors to gauge the degree of risk associated with a particular asset or market.

The HV indicator is based on the idea that the price of a financial instrument can vary significantly from its average price over a certain period of time. The greater the variability, the higher the historical volatility.

The formula to calculate historical volatility is:

HV = (Standard deviation of price returns / Mean price) * 100

Where:

• Standard deviation: A statistical measure of the degree to which a price return deviates from its mean value.
• Mean price: The average price of the asset over a specific period of time.

The HV indicator is usually calculated on a daily or weekly basis, but it can be calculated for any time frame. Traders typically look at historical volatility over the past 30, 60, or 90 days, although longer or shorter periods can also be used.

The HV indicator is often plotted as a line graph and is commonly used in conjunction with other technical analysis tools to identify trends and patterns in the market. High historical volatility indicates that prices are fluctuating widely, while low historical volatility suggests that prices are relatively stable.

Traders can use the HV indicator to determine the potential risk and return of an investment. High historical volatility may indicate a higher level of risk but also a greater potential for profit. Conversely, low historical volatility may indicate a lower level of risk but also a lower potential for profit.