The Historical Volatility (HV) indicator measures the extent of price fluctuations of an asset over a specific time period, using the standard deviation of its past returns. It is a statistical concept rooted in financial mathematics and was widely adopted in the 1970s, particularly with the rise of options pricing models like the Black-Scholes model. HV helps traders understand how volatile a security has been, providing insight into its risk level. High HV indicates large price swings, suggesting greater risk and potential for rapid gains or losses, while low HV signals price stability and lower risk. Although HV doesn’t give direct buy or sell signals, it is used to time strategies, especially in derivatives trading, where volatility plays a key role. Traders often combine HV with other indicators to refine their market decisions.
