This is not a bad introductory primer on volatility which is one of the most misunderstood topics in trading. Although, I do think they make too much of extraneous fundamental factors such as news and earnings and not enough about herd behaviour. From my perspective volatility is simply a function of the human perceptual filter which is at the best of times like a badly calibrated thermostat constantly swinging past the point of equilibrium and then wildly overcorrecting. Only to repeat the process in the other direction.
So there are only a few things you need to know about volatility and they are –
- Volatility is not trend – traders, commentators and analysts get this wrong all the time.
- Volatility is the speed and dispersion of price.
- Volatility always corrects to the mean.
Got that….then you have a firm understanding of volatility.
