Volatility

Volatility measures the rate and magnitude of price changes, indicating market uncertainty and risk. High volatility means large price swings and increased risk/opportunity, while low volatility suggests stable prices. Historical volatility measures past price movements, while implied volatility reflects market expectations. Volatility clustering is common—high volatility tends to follow high volatility. Traders use volatility for position sizing, option pricing, and strategy selection. Some thrive in volatile markets (breakout traders), while others prefer stability. The VIX index measures market volatility expectations. Understanding volatility is crucial for risk management and strategy adaptation.