The Dow Jones Industrial Average has enjoyed a rising run of more than a week. It's a long winning streak and it has led to a burst of optimism about the strength of the United States economy. All this despite Citibank and four other major banks failing the latest round of stress tests.

However, a feature of bullish markets is that bad news is ignored and good news, no matter how small, is trumpeted and feeds the continuation of the rally. This has helped to strengthen the US dollar and drive a collapse of gold prices to the lower edge of the long term upward trading channel.

It has also led to a new five-year low reading in the VIX indicator. The VIX is the ticker symbol for the Chicago Board Options Exchange Market Volatility Index and it is a popular measure of the implied volatility of S&P 500 index options. It is sometimes called the fear index. The VIX is quoted in percentage points and shows the expected movement in the S&P 500 index over the next 30-day period, which is then annualized. High VIX readings occur when investors anticipate an increased probability of large moves - up or down. It is used as a measure of options volatility but volatility in the market takes several forms. A low VIX reading does not mean volatility has left the markets.

Volatility comes in several different flavors. There is price volatility and trend volatility. There is little evidence that price volatility has reduced and there is no strong evidence that trend volatility has diminished. This has important consequences for investors. It may not yet be safe to go back into the water.

Price volatility is measured by the difference between the range of average price moves and the extreme ranges of price movements. It is also a function of the frequency of these larger price movements. Chart A shows a blue-chip stock with a high level of price volatility within an established upward trend. Price movements of 6 percent to 9 percent are common. These lunges in market price occur without warning. Some of these volatility moves plunge the price below the trend line but then close above the trend line. The general direction of the trend is stable, but the behavior of price within the trend is unstable.

The lingering effect of price volatility is shown by the rapid fall in the price of gold from near $1,800 to $1,650. This is more than 8 per cent. It's a similar fall to the recent 12 per cent gold price retreat from $1,750 to $1,530 in December. These are large movements in price.

Large price moves make it difficult to set a stop-loss point that is related to the volatility of price and which does not put too great a proportion of capital at risk. One solution is to allow the risk to expand by moving the stop-loss point further away to take this large price volatility into account. The problem with this approach is that when the stop-loss exit is triggered the loss may be much larger than is reasonably safe. Investors may find they have lost more than they anticipated.

Trend volatility is reflected in the tendency of trends to be of shorter duration and to collapse more quickly when the trend ends. There is no statistical measure of this. It is a market impression formed after looking at hundreds of charts. Post-GFC markets featured trends of shorter duration than trends before 2008. Additionally, these trends ended much more suddenly than they had before 2008. This behavior pattern is shown in chart B. Prior to 2008 many trends ended slowly. Sudden collapses were unusual and investors had plenty of warning that a trend was ending. The head-and-shoulders reversal pattern in the Dow index prior to 2008 developed over several months so investors had plenty of time to exit.

This tendency for sudden collapses in trends that developed after 2008 has not disappeared. Trend sustainability has shortened. Trend volatility, shown by the tendency to collapse quickly, has become more frequent. This increases the volatility of market behavior.

This stop-loss dilemma with price volatility is made worse with the high levels of trend volatility. When the trend does change it can change very rapidly. This means investors may not be able to exit at their preferred stop-loss price. Often the exit is at a much lower price and this increases the loss on the investment.

Volatility is more than just the volatility measured by the VIX indicator. The trend and price volatility that characterized markets after 2008 has not disappeared. High levels of volatility remain and these present a significant challenge for investors and fund managers. The volatility cannot be ignored or passed off as an aberration. It is here to stay and that changes the landscape for investors.

The author is a well-known international financial technical analysis expert.