Volatility measures the rate at which an asset’s price changes over a specific period. High volatility implies frequent and significant price swings, while low volatility indicates more stable price movement. Volatility can result from market events, economic releases, or geopolitical developments. Traders often use technical indicators like the Average True Range (ATR) or Bollinger Bands to gauge and adapt to changing volatility. While volatile markets offer more profit potential, they also carry increased risk, requiring tighter risk management. Volatility is a key factor in determining position size, stop-loss placement, and the overall timing of trades.
Example:
Large daily price swings in equity markets reflect heightened uncertainty.
