The Maths Every Day Trader Should Know
How big is this market move, really?
Compare points, percentages, and volatility units to understand a move relative to its instrument, price level, and usual activity.
By ContextChart Research · 4 min
Published
One move, three measuring sticks
Try it yourself
Native price movement
+10
Relative to starting price
+4.00%
Relative to the known range
0.50×
The reference needs its own instrument, period, and calculation. A range multiple alone does not specify unusualness or cash profit.
A constructed example. Change the inputs to explore the relationship; these are not suggested trade settings.
The idea
A move of 100 points sounds substantial until you ask what a point is worth, where price started, and how far the instrument usually moves.
Three descriptions answer different questions. Price distance tells you the change in the instrument's own units. Percentage change compares that distance with the starting price. A volatility unit compares it with a stated measure of usual movement.
For an illustrative example, a $10 move from $100 is 10%. A $10 move from $1,000 is 1%. The nominal move is identical. Its size relative to price is different.
Now imagine two instruments each move 1%. If one usually moves 0.5% over the relevant period and the other usually moves 2%, their moves have different significance relative to their recent activity.
None of these descriptions identifies the next direction. They give you a clearer account of what has happened and a more consistent way to compare opportunities, costs, and distances.
A useful description of a move names its distance, comparison scale, and time horizon.
How this experiment works
Change the illustrative starting price, price move, and reference range. Compare the same movement in native units, percent, and multiples of that range.
Ask which comparison answers your question. Checking cash exposure requires the contract value and position size. Comparing market activity requires a ruler with a stated period. Comparing an unusual move requires a reference constructed from information available before it happened.
How we use this
Our regime-history study examined nominal and relative daily ranges across several years. It showed that changing price levels and changing volatility both affect what a familiar number of points represents.
Our later unit study asked a narrower question: which ruler makes the next few hours' movement more comparable across instruments and entry times? That research improved measurement consistency in its sample. It did not establish a profitable trading distance.
These studies help us avoid treating “large” as a complete description. We attach the unit and clock to the measurement.
Show the maths
Percentage move = 100 × price change ÷ starting price
Move in range units = price distance ÷ reference range
Average True Range, or ATR, smooths a bar's true range. True range is the largest of high minus low, the distance from high to previous close, and the distance from low to previous close. ATR therefore includes gaps that a simple high-low range can miss.
The timeframe, smoothing method, day boundary, and availability of completed bars affect the resulting number. ATR is a useful reference; it is not a universal forecast of the next move.
What this does not establish
Scaling a move does not determine whether it is informed, persistent, or profitable to trade. A ruler also has estimation error. The next step is to ask whether the same ruler works equally well throughout the day.