Volatility is the percentage of the price change of a certain product in a certain time range. In the crypto market, it means the measure of the increase or decrease of a particular digital asset price in a particular period. Depending on the deviation from the expected price, volatility may be high or low.
Low volatility usually equals 1-2%, and high is mostly 10% and more. High volatility is always a kind of gambling: it may be both profitable (rarely) or lossmaking (typically). Volatility is not a phenomenon in crypto. There are various situations when the cryptocurrency quickly increased in price and then fell even quicker. So volatility is just going big or going home.
On the other hand, low volatility can just “freeze” investments without making money work for you.
Types of volatility
Volatility is usually divided into historical and implied. Historical volatility considers the past price fluctuations of the last year or another time range. It is usually used to predict future volatility.
Implied volatility arises from a reference asset. This is a price change expected by traders in the future. They use numerous tools to make the predictions more precise and avoid financial losses.
Volatility indicators
Volatility indicators are the technical tools used to analyze volatility. The most popular one is VIX (Chicago Board Options Exchange’s CBOE Volatility Index). It measures expected volatility based on S&P 500 index options. A “normal” VIX is considered to be approximately 20%.
Other popular indicators include Bollinger Bands, RVI (Relative Vigor Index), CCI (Commodity Channel Index), and CHV (Chaikin’s Volatility).
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