Volatility

Volatility is usually expressed as how wide the typical price range is relative to the price itself. Two assets can average the same price but behave very differently: one drifting in a narrow band, another swinging widely day to day.

For example, an asset moving between $99 and $101 in a day has roughly a 2% daily range, while one moving between $95 and $105 has roughly a 10% range — five times the swing, for the same starting price of $100.

A common mistake is sizing every position the same regardless of volatility. A position sized for a 2%-a-day asset can lose far more than intended if applied unchanged to a 10%-a-day asset, since the dollar risk for the same position size scales with how much the price actually moves.