Dazed and Confused

Imagine that volatility (square root of the standard deviation adjusted for trading periods) is actually like a sound. And you are a guard at a big prison. It is rumored that there will be a BIG jailbreak very shortly, so guards are at highest alert.

Just before the jailbreak, the sound at the prison is very very quiet. But suddenly now the riot ensues, and alarms go off. The sound is deafening as prisoners fight to escape the prison. It is at this point that the Warden declares an emergency and calls in the Natiunal Guard.

So was the sound "predictive" before the jailbreak? Yes and no. The Warden knew from pervious experience that the "sounds" were so intense as they had been during previous prison breaks. And so based on that familiar "rumble" of noise, the Warden decided that the situation was out of control. Could he have been wrong ? Sure, but his experience listening to the prison "rumblings" tells him otherwise.

A market breakout is a lot like a big jailbreak. "Noise" and activity predcedes it.

Is this the dreaded "curve fitting" ?? Yep, but only as much as the emprical method of observing experience and extrapolating on that basis!!