In this video you will learn:

- What is volatility?
- Why is volatility important to trading?
- How is volatility measured?
- How do we use volatility to trade?

Volatility is the measurement of how much an asset changes in value over a given period of time. The more its value changes, the higher its volatility. If the price of an asset has high volatility, there is more risk associated with trading it, but greater potential for profits. If an asset has low volatility, there is a lower risk trading it, but less profit potential. As a trader, you are always looking for ways to increase profit, thus you will seek out the most volatile assets which give higher potential for profit.

In trading, volatility is measured using certain indicators. Moving Averages, Bollinger Bands and Average True Range are the most common indicators to use. Each of these indicators can be used slightly differently to measure the volatility of an asset and more importantly, interpret the data in a different format.

Moving Averages are displayed on actual price chart and the relation of the Moving Average to the current price gives an indication of the volatility of the asset. The further the price is from the Moving Average, the higher the volatility of the asset. Another very common tool used to measure volatility is the Bollinger Bands indicator. Bollinger Bands display the volatility slightly differently. Several lines are applied to the price action which squeeze together when volatility is low and expand when volatility increases. An asset with expanding bands has a high volatility. The Average True Range indicator also known as ATR, is a tool that measures the volatility, but gives an actual value. So, rather than observing the price in relation to these indicators such as a Moving Average or Bollinger Bands, the ATR gives a value. The higher the value, the higher the volatility. The ATR also shows whether the volatility is increasing or decreasing at a given time.

It is important to note that the ATR indicator does not give the direction of the trend. It indicates whether the volatility is increasing or decreasing. When the ATR line goes up, the volatility goes up. The probability of large profitable moves occuring is reduced when market volatility is low. When anticipating large moves particularly breakouts, it is important to trade in times when volatility is high. The probability of large profitable moves occuring increases when market volatility is high.