What is Volatility Mike?
At VOLMIKE.COM, "Volatility Mike" (often simply referred to as "Mike") is the cornerstone of our analytical approach. It's not just another indicator; it's a proprietary transformation of price action that allows us to understand market dynamics through a unique, powerful lens.
While traditional technical analysis often focuses on raw price, Mike shifts our perspective to the velocity and magnitude of daily percentage change. This fundamental difference unlocks insights crucial for navigating today's fast-moving markets, especially for short-term options trading.
The Problem with Raw Price for High-Velocity Trading
Imagine a $10 stock moving $1 and a $1000 stock moving $1. Both are a $1 change, but their impact on options premiums and overall market sentiment is vastly different. Raw price movements can be misleading, as they don't inherently account for the stock's scale or its relative momentum.
How We Calculate Mike: Normalizing Market Momentum
Mike solves this by normalizing price action. Its formula is simple yet profoundly effective:
$$\text{Mike} = \left( \frac{\text{Current Close} - \text{Previous Close}}{\text{Previous Close}} \right) \times 10,000$$
This means Mike quantifies the daily percentage change of the closing price, scaled by 10,000. This scaling makes the values easier to interpret while preserving the critical insight of relative movement.
- A Mike value of 100, for example, indicates a 1% upward move from the previous close.
- A Mike value of -50, for instance, indicates a 0.5% downward move from the previous close.
Why Mike is a Game-Changer: Analyzing the Volatility of Change
Once we've transformed price into Mike, we then apply all our standard technical indicators directly to the Mike series, instead of raw price. This is where the magic happens:
Normalization Across Assets
A specific value or pattern in Mike is comparable whether you're analyzing a large-cap tech giant like NVDA or a lower-priced equity. This allows for consistent pattern recognition and strategy application across diverse watchlists.
Focus on Momentum & Velocity
By applying indicators like Bollinger Bands, Ichimoku, and ATR to Mike, we're analyzing the volatility of the daily percentage changes themselves. This provides a direct measure of market conviction and the potential for explosive moves.
Uncovering Hidden Signals
- Mike Bollinger Bands (Mike BB): While Price BB shows the volatility of the price, Mike BB reveals the volatility of the momentum. A tightening of Mike BB can signal an impending surge in the rate of change – often a precursor to significant directional moves.
- Extreme Velocity Detection: When Mike touches its Bollinger Bands, it signifies an exceptionally large daily percentage gain or loss, indicating extreme positive or negative momentum relative to recent daily momentum. This is a critical component of our "Marengo" signals.
- Foundation for "Marengo" Setups: Mike is the indispensable core of our "Marengo" trading philosophy. Every "Opus" card, from a "North Marengo" to a "Scout South Marengo," is fundamentally built upon the analysis of Mike's behavior. It allows us to identify those high-velocity, high-conviction opportunities that define our strategy.
In essence, Volatility Mike allows us to cut through the noise of absolute price and directly analyze the market's true intent and velocity, providing a clearer path to identifying profitable short-term trading opportunities.