Crypto Volatility Trading Guide
Volatility is the raw material of scalping and its main hazard. Without it there is no move to capture; with too much of it, or the wrong kind, stops are hit by noise before price reaches a target and market orders fill far from the screen. Every stop, target and position size on this site is a multiple of the current volatility, whether or not it was written that way.
This section covers the subject from a short-term trader's side in two lessons: what volatility is, how it scales with time, why crypto has more of it and how it arrives in clusters; and then the implied version, what the options market is paying for tomorrow's move and how to convert it into the size of the day.
Lessons
- Crypto Market Volatility Explained: realised volatility, the square-root-of-time rule from 45% a year to $60 a minute, why crypto is more volatile, clustering, and what changes in the plan when the ATR doubles
- VIX vs DVOL: implied volatility indices, DVOL ÷ 19 as the expected daily move, why the direction of change matters more than the level, term structure
Related topics
- ATR Indicator: realised volatility per candle, the stop outside the noise and the position from it
- Bollinger Bands: the squeeze as compression before expansion
- Crypto Options for Beginners: implied volatility as the price of an option and as a tradeable quantity
- Implied Volatility & Skew: IV and skew as market context
- Liquidations: the forced orders behind crypto's largest moves
FAQ
What is implied volatility in crypto? The size of movement the options market is pricing for the future, read from option premiums and quoted as an annualised percentage. High implied volatility means large moves are being paid for; it says nothing about their direction. See VIX vs DVOL.
What is DVOL? Deribit's implied volatility index for Bitcoin (and Ethereum), the crypto equivalent of the VIX: one number for the 30-day expected volatility, derived from live option prices. Divided by nineteen it gives the one-standard-deviation daily move. See VIX vs DVOL.
How does volatility affect my stop-loss? The stop sits 1.5 to 2 ATR beyond the level so that it is outside the ordinary candle range, and the position size follows from the stop. When volatility doubles, the stop doubles and the position halves; keeping yesterday's numbers doubles the risk without deciding to. See Crypto Market Volatility and ATR.
Is high volatility good for scalping? Directional volatility, a range breaking into a trend, is what scalping is built for. Erratic volatility around a scheduled release, price up and down a thousand dollars in a minute with an empty book, is not tradeable and is a no-trade window. See Crypto Market Volatility.
This content is educational only. Not financial advice. See disclaimer.