Question 1

What is historical volatility?

Accepted Answer

Historical volatility (HV) measures how much an asset's price has fluctuated over a past period, expressed as an annualised standard deviation of returns. A 20% annual volatility means the asset has historically moved about 20% per year — though not smoothly.

Question 2

How is annualised volatility calculated?

Accepted Answer

Calculate daily log returns, find their standard deviation, then multiply by the square root of 252 (trading days per year) to annualise. This calculator performs all steps automatically from price inputs.

Question 3

What is the difference between historical and implied volatility?

Accepted Answer

Historical volatility is backward-looking — calculated from past price data. Implied volatility is forward-looking — derived from current options prices and reflects market expectations of future volatility. Both are used in options pricing and risk modelling.

Question 4

How does volatility affect position sizing?

Accepted Answer

Higher volatility means larger price swings, requiring wider stop losses to avoid being stopped out by noise. Wider stops with the same risk percentage result in smaller position sizes. The ATR Position Size Calculator uses volatility (via ATR) to size positions dynamically.

Volatility Calculator