Volatility
Volatility measures how much a price moves up and down. The usual measure is the standard deviation of returns.
How Volatility is calculated
Daily volatility = standard deviation of daily returns over n days. To annualise, multiply by the square root of the number of trading days a year: about 252 for stocks and 365 for crypto. Realised volatility looks backward at what happened. Implied volatility is backed out of option prices and is a market expectation.
How it is read
A 2 percent daily volatility means a typical daily move of about 2 percent in either direction. Volatility is high after large moves and tends to cluster.
Common mistakes
- Reading volatility as risk of loss in one direction. It counts up-moves too.
- Comparing annualised figures that used different day counts.
- Assuming a quiet period will continue. Volatility changes regime without warning.
What Tickfloor tested
Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
- VIX Term Structure Timing (claim test)
- Is Kelly sizing better than volatility targeting? (claim tested)
Lessons that cover it
- Fear gauges: the VIX, funding and sentiment
- Implied volatility as an expected move, and the VIX
- ATR, Bollinger Bands and volatility-based stops
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.