Info!! Emotional Volatility Together With Emotional Volatility Of Volatility

Suppose the volatility of markets is a proxy for the emotional volatility of marketplace position participants.  In an ultra depression volatility market, zip is moving rattling much.  There's non much to larn excited or worried about.  In an ultra high volatility market, things are moving much to a greater extent than than normal.  That is an environs ripe for fear, greed, uncertainty, overconfidence, together with underconfidence.

So what is the emotional significance of the volatility of volatility?  When volatility itself becomes volatile, emotional stability is itself unstable:  nosotros swing abnormally betwixt calm together with arousal.  It may good hold out the example that the volatility of volatility is to a greater extent than of import to performance--market surgical physical care for together with trading performance--than volatility per se.  If nosotros are inward a stable volatility regime, nosotros tin plough over the sack accommodate to depression or high levels of marketplace position movement.  But if volatility itself is moving around, adaptation becomes far to a greater extent than tricky.

Above is a volatility of volatility stair out based upon pure volatility (volatility per unit of measurement of trading volume) from November, 2013 to the present.  Note how nosotros are inward a far dissimilar vol of vol authorities than inward the recent past.  This too shows upward on traditional measures of volatility of volatility, such every bit $VVIX.

When pure volatility is inward its lowest quartile together with volatility of volatility is low, the side yesteryear side 3 days inward ES accept averaged a loss of -.25%.  When pure volatility is inward its lowest quartile together with vol of vol is high, the side yesteryear side 4 days inward ES accept averaged a loss of -.02%.

When pure volatility is inward its highest quartile together with vol of vol is low, the side yesteryear side 3 days inward ES accept averaged a loss of -.27%.  When pure volatility is inward its highest quartile together with vol of vol is high, the side yesteryear side 3 days inward ES accept averaged a *gain* of +.77%.

Like I said, it may good hold out the example that vol of vol--and non but volatility--is cardinal to marketplace position surgical physical care for together with trading performance.  When nosotros accept had volatile markets together with volatility itself has been volatile, those markets accept provided the best upside returns.

Do nosotros accept ways of adapting, non alone to volatility, but to volatility of volatility?  In our trading?  In our self-management?

New promising answers come upward from squall for new, promising questions.

Further Reading:  Pure Volatility
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