Hello and welcome to another ACY Securities tutorial. My name is Alistair Schultz and I'm going to be a host through today's trading journey.
Now on today's topics, I'm going to be talking about volatility and we always hear it in the market that something is volatile or that a volatility rating is in increasing. And what that is all about is what I want to talk to you all about today. So at the end of the day, what is volatility really? In simple terms, it's just the up and down fluctuations or the movements in price that you see, but it's often mistaken to be used in other places that really shouldn't be. Now the reality is that it's just a measure of price fluctuations and nothing more is to it. By definition, it's a measure of risk based on the standard deviation of your return. So if something has high volatility, it means that price can fluctuate dramatically in usually in short periods of time.
If it's got low volatility, it means that price is usually going to be more stable and that those fluctuations in price are going to be smaller and more linear. Now to put that into an example. If we have a look at this chart here, the blue line represents something that has low volatility, while the purple line has something that represents high volatility and we can see that they both reached similar points in price having started from similar places, but the movement between getting from point A to point B has gotten much more fluctuation on the purple side than what it does on the blue. When we think about volatility, there are a number of different terms that are commonly come up. Now I'm not going to go through what these commonly placed terms actually are because I could make a whole another video on each one on its own, but the fact of the matter is that if you look at some of these names that are on the board behind me, such as beta, your actual implied, historical, current and indexed, they all get into change with volatility at some point in time and usually together at the same time.
Now what does it really mean at the end of the day? Well, one of the measurements that we always look at is the fear measurement and so when we talk about fear and volatility, the reason we look at that is because if we see an a market that has got relatively low volatility most of the time and has been relatively stable for most of its rise or throughout the year, and then all of a sudden we have a high amount of volatility impacting that price with massive fluctuations, kind of like what we're seeing now around all the coronavirus, then that automatically triggers off the waves of people thinking about volatility as a measurement of trade or fear. So when you're looking at the charts later in the day or you see something about volatility, perhaps it's an index on volatility or perhaps it's maybe an indicator about volatility, you'll have a little bit more information to think about that in relative terms.
Now we often use the word volatility when price goes down and that is often the case as to why you get that theme measurement being used so often. Or the idea that a volatility scale or index is a measurement of the fee of the people trading in the market, so it's not something to be much to be concerned about. It's not as if there is actually fear being pushed around in the market. It's just a way of sort of looking at the describers for what is going on in the market and the volatility that a certain index market or a stock may actually have at that given time. Now that's all we have for today's little short tutorial. We will make more on volatility and probably look into the idea of what age of their definitions are as we move through it and how they're all calculated. But for now, I hope you have enjoyed the video. Now, of course, if you want to get in contact with me, if you have any questions on today's video or even some of the other ones we've done, feel free to get in contact with me and send me a message talktoAL@acy.com and of course, like and subscribe the video so you can get more tutorials and market updates from us in the future. Have a great trading day ahead.
