Been looking at different HV calculations and getting confused by the variations I’m seeing.
Some use 252 trading days, others annualize differently. The square root part makes sense but the daily return calculations seem inconsistent across platforms.
What’s the standard approach most of you actually use?
To calculate daily returns, use ln(today’s close / yesterday’s close). Next, find the standard deviation of those returns over your chosen period and multiply by √252. The common practice of using 252 days works well since markets close on weekends. Your broker’s historical volatility tool is sufficient for position sizing. What matters most is how you apply this number. Keep in mind that historical volatility reflects past movements, not future predictions.
Most platforms use 252 trading days since that’s roughly a year’s worth of trading. Makes it way easier to compare volatility across timeframes.
I stick with natural log of today’s close divided by yesterday’s. Some folks use simple percentage returns, but logs handle compounding better.
Biggest thing is staying consistent. I’ve watched traders flip between different HV calculations and screw up their risk management when the numbers don’t line up.
MT4 and TradingView already use the standard method, so I don’t mess with it. Why reinvent the wheel when the math’s already there?
HV calculations differ because you can use either logs or percentage returns for daily returns.
Most traders go with logs since they handle compounding better over time. The 252-day annualization is standard.
Just pick one method and stick with it for good risk management.
Stick to what the broker shows by default
Stick with the platform’s default. Using 252 days is the common choice for easier comparisons.
Blew up my first account switching between different HV formulas - learned this lesson the expensive way.
The differences boil down to how they calculate daily returns and annualization. Some platforms use simple returns, others use log returns.
I tested both. Log returns were more accurate during crazy volatility - they handle sudden price spikes way better.
Most use 252 trading days, but some European platforms go with 260. Just stay consistent with whatever you pick.
Honestly? Use whatever your platform gives you. I switched to MT4’s built-in HV indicator for position sizing and haven’t looked back. Spent way too much time tweaking spreadsheets when I should’ve been trading.