Traders' Tips  |  JUN 2003

Traders’ Tips by Technical Analysis, Inc.

Traders’ Tips by Technical Analysis, Inc. • TRADESTATION: IMPLIED VOLATILITY AND VOLUME Scott Castleman’s article in this issue, “Using Implied Volatility And Volume,” describes a market-adaptive channel breakout system in which the channel lookback period is a function of implied volatility and volume. The core strategy’s EasyLanguage code can be found in the sidebar of the article itself. We have elaborated on Castleman’s code by creating two new indicators. The first displays the “LookBack” calculations producing his trading “thresholds.” The second plots the thresholds themselves. We have named them “IVV Lookback” and IVV Thresholds.” The IVV Thresholds indicator is fairly straightforward, looking something like a Bollinger Band or Keltner channel. The IVV LookBack is probably most useful as an aid for understanding how the implied volatility and volume scheme works. The thresholds are based on a lookback window of variable length (displayed as a magenta line; see Figure 1). The length is a function of the VIX range (cyan line) and data1 volume range (yellow line). The higher the VIX and volume range, the shorter the lookback for determining the breakout threshold.

by Technical Analysis, Inc.