If you’re diving into the world of trading, you might have heard of the Parkinson's number. Developed by physicist Michael Parkinson back in 1980, this indicator is designed to estimate the volatility of returns based on the high and low prices over a set period. It’s particularly useful for traders looking to assess market movements and price dynamics.
- SH is the stock's high price for day t.
- SL is the stock's low price for day t.
- High/Low Return (xtHL) is calculated using the natural logarithm of the ratio of the stock's high price to its low price.
- Return:
- Parkinson's Number:
This indicator isn’t just a number; it's a powerful tool for understanding daily price distributions and market dynamics. By comparing the Parkinson's number with other volatility measures, traders can gain insights into market tendencies and the behavior of stop-loss orders.
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