What is Volatility?

Volatility measures how much an asset's price changes over time. It represents the degree of price variation and is often used as a measure of market risk and trading opportunity. Cryptocurrency markets are known for their high volatility compared to traditional markets.

Types of Volatility

Historical Volatility

• Based on past price movements
• Calculated using standard deviation
• Used for trend analysis
• Reference for option pricing

Implied Volatility

• Market's forecast of likely movement
• Derived from option prices
• Forward-looking metric
• Reflects market sentiment

Trading Implications

Risk Management

• Higher margins required
• Wider stops needed
• Increased slippage risk
• Greater profit potential

Strategy Adjustments

• Position sizing
• Order placement
• Time frame selection
• Risk-reward ratios

Related Terms

• Risk Management
• Market Analysis
• Stop Loss
• Slippage