Volatility

Volatility measures how much and how often a price swings. If one stock moves about 1% a day and another moves 5%, the second is far more volatile over the same period. It describes the size of the swing, not its direction.

That makes high volatility a statement about risk and opportunity at once. A price that can fall hard can rise hard too. Crypto and small caps swing widely, while deposits and government bonds barely move.

It is usually calculated as the standard deviation of returns, and the market-wide version is the VIX. True to its nickname, the fear index, it spikes when investors get nervous — sitting in the teens in calm markets and jumping to 40 or 80 in a crash.

In practice what matters is not the number but whether you can live with it. Volatility beyond your tolerance breaks your nerve before any loss is realised, and that is what makes people sell at the bottom. A workable limit is holding only as much as still lets you sleep if it halves.