High-low range estimator
Can volatility be measured from each period's high and low instead of its closing prices?
In plain words
A high-low range estimator measures volatility from the highest and lowest prices reached within each period, rather than from the closing prices alone. Because it uses the extremes the market actually touched, it captures intra-period swings that a close-to-close measure can miss.
Why it matters
Closes can hide how far a market travelled in between. A week that ends near where it started may still have contained a violent round trip. Traders sizing positions from close-to-close volatility alone can therefore understate the distance a stop or a margin call might need to absorb.
In a real week: BTC, week of 29 November 2021
For BTC in the week of 29 November 2021, the price spanned a high of 59176.99 on Tuesday and a low of 42000.30 on Saturday, a range of 40.9%, while the net close-to-close return was -13.76% and annualised realised volatility was 81.0%. The high-low range was roughly three times the net move, showing how much travel occurred between the extremes that closing prices did not register.
A common mistake
Reading the high-low range as a net price change. It measures the distance between two extremes inside the period, not the direction or the return an investor actually earned.