Basically Futures

STAGE 2 · LESSON 4 OF 5

Volatility and the meaning of a typical move

Volatility measures how widely prices vary; it does not tell you direction.

THE IDEA~8–12 MINUTES

Understand it

Daily range, standard deviation of returns, and average true range describe different aspects of movement. A wider expected range generally affects appropriate stop distance and position size, but a volatility measurement never guarantees a maximum future move. A fixed 5-point stop may represent vastly different context across instruments or sessions.

WORKED EXAMPLE

Suppose a 10-day average range increases from 80 to 160 points. A stop based on the earlier period may now sit closer to normal price movement. The right response may be smaller size or no trade—not automatically a wider stop.

Watch for this misconception

Treating a historical average as a hard bound or a future price forecast.

PRACTICE EXERCISE

Compare the same fixed stop distance to two hypothetical volatility regimes and explain the implications.

Chart trainer ↗
KNOWLEDGE CHECK

What does an ATR-like measure primarily describe?

Select the best answer

Check the sources

Hypothetical educational examples. Verify current product specifications and rules before making decisions.