Market volatility (Volatility) is something every trader must understand well, because it greatly affects our investment decisions.

Put simply, volatility measures how quickly an asset’s price changes. The more the price swings back and forth, the higher the volatility. Most often, we calculate it using standard deviation, which measures how much the price deviates from the average.

Why should we care about this? Because volatility tells us the level of risk in an investment. An asset with high volatility means the price may rise and fall rapidly, which can significantly change the value of our portfolio. But on the other hand, it also opens up opportunities for greater profits.

There are several ways to measure volatility. In addition to standard deviation, there is also the VIX indicator, known as the “fear index.” It measures investors’ expectations for S&P 500 price movements over the next 30 days. The higher the VIX is, the more the market is worried, and options (Options) tend to become more expensive.

Another important indicator is beta (Beta), which shows how that asset moves relative to the overall market. For example, if a security has a beta of 1.5, it means it will move more than the market on average—specifically, by 1.5 times. However, beta has its limitations. It can change over time, and it isn’t a complete measure of risk.

When it comes to types of volatility, there are two you need to know. Historical volatility measures how much an asset fluctuated in the past. Implied volatility is the market’s forecast of how much it expects volatility to be in the future. The two types are useful in different ways: historical volatility helps us understand the price history, while implied volatility helps us gauge the likelihood of future scenarios.

If you want to understand volatility more deeply, try looking at an example calculation. Suppose the stock prices over four days are 10, 12, 9, 14 baht. First, find the average = 11.25 baht. Next, find the difference between each price and the average, square all the differences, add them up, divide by the number of days, and finally take the square root of the result. In this case, the standard deviation is approximately 1.92 baht.

In the Forex market, volatility is just as important. Some currency pairs are highly volatile, such as USD/ZAR, USD/MXN, USD/TRY, while other pairs like EUR/USD and USD/CHF are less volatile. Major currency pairs are often more stable because they are more liquid.

If you trade in a highly volatile market, consider using supporting tools such as Bollinger Bands, which help identify when the market is overbought or oversold; the Average True Range, which measures volatility and also helps set a Trailing Stop; and the Relative Strength Index, which helps measure the magnitude of price changes.

The most important thing is to always have a Stop Loss. When trading in volatile markets, a Stop Loss helps you manage risk better, and if you use leverage, you must be even more careful.

Another tip is to strictly follow your trading plan. Sticking to your plan helps you stay ahead of volatile markets and trade more consistently.

To deal with volatility, view it as an opportunity rather than a threat. When the market falls, prices fall too—giving you a chance to buy at better prices. Investing is a long-term game, so don’t worry too much about short-term fluctuations. Rebalance your portfolio to stay ready for possible changes.

If you’re still new to this, try opening a free demo trading account. The best way to learn is through practice. With virtual money, you can experience what trading feels like and see how volatility works in the real world.