What Is Volatility?
Volatility measures the magnitude and frequency of price changes over a given period. It's typically expressed as a percentage or through indicators like ATR (Average True Range) and standard deviation. Crypto is among the most volatile asset classes — Bitcoin regularly experiences 5-10% daily moves, and altcoins can move 20-50% in a single session.
How Volatility Works
Volatility is measured as:
- Historical volatility — Calculated from past price data (backward-looking)
- Implied volatility — Derived from options prices (forward-looking market expectations)
Low volatility periods (compression) typically precede high volatility expansions. This cycle — compression to expansion and back — is one of the most reliable patterns in markets. Bollinger Band squeezes and ATR lows identify these compression phases.
Why It Matters for Traders
Volatility is the source of all trading profit (and loss). Without volatility, there's nothing to trade. Understanding the volatility cycle helps traders prepare for explosive moves, size positions appropriately (smaller in high vol, larger in low vol), and set stop-losses that account for normal price noise.