PrevNext

Volatility

What is Volatility?

Volatility describes the rate and size of market price movements, and importantly in both directions - up and down.

High volatility indicates large and fast fluctuations in a market, while low volatility indicates quite stable prices with small variations in that market. As a rule of thumb it is easier to trade in a low volatile market.

What Causes Volatility?

Many factors combine to raise volatility in a market such as risk, high emotions, automated trading, very high volume trades, high impact events, uncertainty, and more. Typically when outside forces are calm volatility is low.

Consider Volatility When Trading

Volatility has to be considered in any decisions you may make. Volatility is neither good or bad, although your intentions to trade in such a market must be considered beforehand. For example, if your trade requires volatility (like options trading) then a volatile market is what you require, and low volatility may produce sub-standard results. But on the other hand if your trade required low or little volatility like share trading or property development then the best time to trade is during periods of low volatility. Strictly speaking this depends on your strategy and the examples just illustrated make not represent a real example.

Further Reading

Volatility (wikipedia)