Volatility is a measure of the change in price, the sum of a low and a high over a fixed period of time, or a change from an average. Both of the above concepts of volatility are correct. And obviously, the higher the volatility, the higher the risk - and the higher the opportunity.

A change in volatility will result in changes in the expected price range. The price of an asset with a high level of volatility is difficult to predict and also to take action next. Meanwhile, assets with moderate volatility fluctuate in a narrower range and are therefore more predictable. The main reason to watch volatility is to adjust your profit targets and stop-loss levels accordingly.

Volatility is something that can easily slide over your fingers if you're not careful, which means that volatility levels will always change. For a mathematically inclined trader, volatility often refers to the standard deviation of price changes. Standard deviation is not the only measure of volatility, but it is sufficient for most technical analysis purposes. As for general usage, volatility means variance.

Variance is a statistical concept that measures the distance of a high and low from a mean (such as a moving average). You calculate variance by taking the difference between the highest or lowest value from the mean, square each result (remove the minus signs), add them up, and divide by the number of cycles. Variance magnifies the bias, so the larger the volatility compared to the average, the higher the volatility.

Traders do not use variance as a measure or stand-alone indicator and it is not provided in charting software. Why? Because the variance is not as useful as the standard deviation, it is essentially the square root of the variance. Don't panic when thinking of square roots or any other statistical measure in technical analysis. Your software will provide indicators that use variances, and you don't need to know how to calculate metrics to use them effectively.


In the picture above, your eyes tell you that the price has a low variance on the left side of the chart while on the right side of the chart, the variance will be greater (The price bars are equal and almost the same, so we say the variance of the price bars is low, while the bars on the right are of different length, we say the variance of the high bars). And this is the role of volatility - it describes the degree of risk. HIGHER Means means higher RISK

How does the volatility arise?

Think of mass volatility. Volatility increases as traders get excited about a new move. They anticipate the price to move to a new high or low, which ignites greed towards the Bulls and causes them to place new long positions and fear against the Bears, who scramble to get out. Waterfall named hole cut. A trend is formed when new highs or lows are formed. Volatility tends to be abnormally low just before times of turn and abnormally high just as the price is about to take off to form a new trend. Therefore, please determine VOLUME BEFORE DETERMINING the trend!

Volatility is not inherently good or bad. The stability of volatility over time is a good thing as it allows you to estimate your maximum potential gains and losses with greater accuracy. Each asset has its own volatility rating that changes over time as the fundamentals and the number of participating traders change. We could say that the volatility helps us identify the potential error/error!

So what are the Levels of volatility?

Low/high volatility with the trend

You can refer to the picture above. When the price chain starts, you immediately see an uptrend. Part of your ability to see trends is due to the order of movement. You can predict future low volatility price ranges with greater confidence than assets that are highly volatile.

With assets that are trending and low volatility for a longer period, you can hold them confidently.

Low volatility has no trend

Assets with a sideways trading range with little day-to-day volatility are untradeable. With this kind of volatility, you can reduce the time frame (e.g. from one day to one hour) and maybe surf trade.

High volatility has no trend

When an asset is traded within a range, it is known as a trader's nightmare. And when it trades in a range with high volatility, it's a terrible nightmare. The bottom right part of the price chain in the image above shows this. In this situation, the range is too wide for a breakout point to be determined. Also, range trading is difficult as the price often produces stop-loss swings!