What it means
ATR and Bollinger Band width measure it. Higher volatility calls for wider stops and smaller position size.
In practice
Volatility sets the scale for everything in a trade plan: how wide the stop needs to be, how far a target can reasonably be, and how large the position can be for a given risk.
It tends to come in clusters. Quiet periods are followed by active ones and the reverse, so an unusually narrow range often comes before a strong move. Sessions, news releases and market opens are the usual sources.
What to watch for
Using the same stop distance and position size in every condition means risking far more on volatile days than on quiet ones. High volatility also widens spreads and increases slippage.
Related terms
3 terms- ATRWilder's measure of volatility: how far price typically moves per candle, including gaps. No direction.
- Bollinger BandsBBA 20-period SMA with bands two standard deviations above and below; narrow bands (a squeeze) often precede big moves.
- Position sizingChoosing your size so that your stop distance costs exactly your planned risk.