Cryptocoin Volatility Calculation
TL;DR;
If you are interested in coin volatility – go to https://ccowl.com/coins . Sort by 5HR CO VAR and 5HR REL DIFF and tell me which metric you like better. You can sort by clicking header of a column. You can open a coin in a new window and examine the graph by right clicking on a row and selecting an appropriate link (or just click on a row in mobile)
GENERAL INFO
Volatility is an important concept in altcoin trading. It tells us how much a coin price fluctuates. If a coin fluctuates a lot, it will have a higher volatility. A daytrader may want to look for a high volatility coin to make some quick profit. A good example is recent behavior of BCH. On the other hand, someone looking to HODL may want to invest in a less volatile coin.
VOLATILITY FOR ALTS
I want to add volatility calculation to my website https://ccowl.com, but there are many ways to do it and I want to hear your opinion on this matter. For this discussion – lets figure out how to calculate recent (5 hour) volatility of a coin.
FIRST WAY (Coefficient of Variation)
[5HR CO VAR] on ccowl
This is a textbook way of volatility calculation. It basically tells you how much sample values differ from the average. Bigger difference will be much more visible (since it gets squared).
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Find closing cost of each 10 minute interval for the last 5 hours.
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Find standard deviation of those closing costs.
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Divide standard deviation by the mean of the sample.
The problems I see with this calculation is that it doesn’t account for changes within the 10 minute interval (max vs. min of 10 mins). Additionally, it will produce a high value for when a coin price generally doesn’t fluctuate much, but changes it’s price once and holds it in the middle of the 5 hour interval.
SECOND WAY (Relative Differences)
[5HR REL DIFF] on ccowl
I attempted to solve some of the issues of the previous way by finding relative differences within the 10 minute interval and between them. I have mixed feelings about the results. Here is the algorithm:
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Extract the list of relative differences of min and max for each 10 minute interval. Relative difference is (max – min) / avg(min, max).
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Find standard deviation of the list above.
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Extract the list of relative differences between closing costs of each preceding time interval.
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Find standard deviation of the list above.
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Add two standard deviations from step 2 and 4.
I kind of like this approach, but it seems to be give too much score to low value coins like DOGE that keep fluctuating between 0.00000017 and 0.00000018, which technically is a huge jump each time.
Additional Metrics
Volume. Volume generally isn’t included in the price variation, but if a coin has very low volume and only trades 10 times a day – there will be a huge variation in price (just look at MGO). I could punish the coin that have very low volume and half their volatility (could even multiply result by a smooth logarithmic function of volume).
Value Recent Variation More than Old. We could say that variation 5 hours ago isn’t as important as the most recent variation and apply EMA style function to could 5 hour ago variation for half as much as last 10 minutes.
CONCLUSION
Do you have any opinion or suggestions for variation calculation?
Thank you very much!
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