What Volatility Measures
Volatility measures how much and how fast prices move over a given period. It is not a direction — a market can be highly volatile going up, down or sideways.
Historical vs Implied
- **Historical volatility**: what happened in the past
- **Implied volatility**: what the options market expects for the future (e.g., VIX)
Regimes
- **Low-vol regime**: tight ranges, mean-reverting behaviour
- **High-vol regime**: wide ranges, breakouts, momentum
Adapting Position Size
The same 1% risk requires a *smaller* position in a volatile market than in a calm one. ATR-based sizing keeps risk consistent.
Volatility and Strategy Choice
- Trend-following: better in expanding volatility
- Mean-reversion: better in compressed volatility
- News trading: requires acceptance of extreme volatility
Key Takeaways
- Volatility is neutral — but affects risk on every trade.
- Adapt size and strategy to the regime.
- Never fix a stop distance in pips without checking the volatility of the day.