How to read it
- Inner band (50%): half of the past outcomes of this asset, at this volatility, ended inside it.
- Outer band (80%): 8 outcomes out of 10. One in 10 ended above it, one in 10 below.
- Dotted middle line: the median outcome. It is close to today's price: the cone does not forecast a direction.
- Width: it grows with the square root of time, and with the asset's current volatility.
How to draw it
- Choose Projection & measure → Volatility cone.
- Click the starting bar (usually the last candle).
- Click the date to project to, to the right of the last candle. The cone is computed from the bars before the start, so it can also be drawn in the past to check what it said.
Select the cone to read both bands' prices. When Tick draws a cone on a chart, it uses ten years of daily history, the earnings date when one falls inside, and the same method.
How it is computed
σ²(t+1) = 0.94 · σ²(t) + 0.06 · r(t)² σ²(t+k) = σ²(long run) + 0.977^(k−1) · (σ²(t+1) − σ²(long run)) band(p) = price · exp( √(Σ σ²) · quantile_p(past standardized moves) )
r: daily log return. Long-run variance: the last year. Shocks fade with a 30-session half-life.
Today's volatility comes from an exponentially weighted average of recent moves (RiskMetrics), fading back toward the asset's usual level over the horizon. The shape of the bands comes from the asset's own past moves, scaled by the volatility of their day: fat tails and skew are kept, instead of assuming a bell curve. Banks use this method, called filtered historical simulation, for market risk.
How accurate it is
Tested walk-forward on real daily series (stocks, indices, gold, EUR/USD, 1995–2018, crashes included), on assets not used to set it:
| Horizon | Inside the 50% band | Inside the 80% band | Inside the 90% band |
|---|---|---|---|
| 5 sessions | 49.9% | 78.9% | 89.0% |
| 10 sessions | 51.7% | 80.7% | 89.8% |
| 21 sessions | 52.2% | 81.5% | 89.5% |
| 63 sessions | 53.9% | 81.4% | 88.0% |
Charts in this guide use simulated prices generated for illustration; levels and outcomes shown are examples, not observations of a real market. Educational content only, not investment advice.