Whenever someone asks about the market director, many times we go blank. What we majorly see is movement in Nifty and tell the person the expected movement. This analysis is not accurate since you are not giving direction based on volatility. You predict movement just based on absolute price movements in index stocks.A good answer to give when someone asks the direction of market is volatility Index. It is popularly known as Fear Index or India VIX.
Background: India VIX is a big contrarian indicator in the world. It is computed by NSE since 2007, the 52 weeks high and low of India VIX is 22.1225 and 9.3475 respectively.as the VIX index is denoted in percentage, so the value cannot go below zero and rise more than 100.
India VIX Explained; It is a measure of market volatility expected in the near future. When the market volatility increases, the VIX index tends to rise and at the time of lesser volatility the index declines.The current value of VIX index is : 17.3050. A negative correlation exists between Nifty and India VIX. When VIX drops nifty tends to go up and vice versa. If VIX is trading high it means movement in Nifty will be high.
Taking the past years performance of VIX into consideration, a value of VIX above 25, points towards higher volatility and a value below 15 is considered as low.
How to calculate the expected volatility using VIX.
1. The current vale of VIX is 17.3050 which means that index can move up or down by 17.3050 in next one year. So currently Nifty is trading at 8000 so the range for nifty for the year is 9400 and 6600.
2.If we want to compute the monthly volatility then we have to divide the VIX vale of 17.3050 by square root of 12. So as per current VIX value the range for Nifty for the month is : 17.3050/3.464 which is 4.99%. So going by current levels of nifty the range for nifty for the month is 8390 and 7600.
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