Volatility
Last updated
Last updated
The Volatility indicator measures the 30- or 60-day variations in price for a particular crypto-asset. This is calculated as the standard deviation of the period’s daily returns and annualizing the variation. Since crypto markets are 24/7 the annualization formula takes into account 365 days (as opposed to the 252 trading days generally available in stock markets).
Volatility is traditionally a measure used to evaluate the riskiness of investing in a particular asset. High volatility essentially means high price swings (either on the upside or downside). Low volatility, on the contrary, points to stagnating price action.
In crypto, historically, periods of low volatility tend to precede large spikes in volatility as can be seen in October 201, April 2019 and July 2020 for the Bitcoin chart. As such, these could be interpreted as moments to trade in either direction. On the other hand, large spikes in volatility generally point to a trend-reversal, suggesting that the current trend may be over-extended.
⭐️ Quick Tip: Keep an eye on periods of very high volatility as an indicator of price potentially reverting its direction towards the mean. Periods of low volatility tend to signal an imminent large break-out in either direction.
