What is Volatility Index

Volatility index is a term which is used in the stock market to gauge the investors and traders sentiment. Before understanding volatility index one should know the meaning of volatility, volatility means the prices of stocks are fluctuating widely which makes it difficult to trade in stocks because stocks may go up or down sharply during volatile times.

Volatility index of 30 and above is considered to be high and it means that there is fear among market participants. Many contrarian investors take this as a sign of capitulation and start investing money because market typically bottoms out when this is at high level.

Volatility index of 20 and below is considered to be low and it means that participants are complacent and not worried about the fall in the prices, a low value on this index is a danger sign because any bad news can trigger a big fall in the markets since majority of players in markets are not prepared for fall which leads to complete chaos in markets.

As one can see volatility index can be a extremely helpful tool because it has signaling advantage and many influential players in stock market use this index before taking buying or selling decision related to stocks.

0 comments… add one

Leave a Comment