What are volatility spikes? Learn

What volatility means in practice

Volatility is how much the price moves. For short-term traders the simplest measure is the range of a candle: the distance from its high to its low, in percent of the price. A coin whose 5-minute candles usually span 0.5% is calm; one whose candles span 3% is not. Averaging the range over many candles gives the coin's normal volatility — the idea behind the ATR (average true range) indicator.

Volatility spikes

A volatility spike is a candle with a range several times the coin's normal one. It means something changed suddenly: news, a listing, a large order, a liquidation cascade or the start of a strong trend. The direction of the candle matters less than the fact that the market's behaviour changed — the calm regime is over, at least for a while.

How to read volatility

• Volatility clusters. Large moves tend to follow large moves. After a spike the next candles are usually wider than before, in either direction.
• Compression before expansion. Long stretches of narrow candles often end with a sharp expansion. A spike after a quiet period is more meaningful than one in an already wild market.
• Range and close. A wide candle that closes near its high or low shows one side won. A wide candle that closes in the middle shows a fight that is not decided.
• Risk size. Higher volatility means wider stops for the same idea. Many traders cut position size when volatility jumps, so a stop at the usual distance does not get hit by noise.

Limits to keep in mind

A wide candle shows that something happened, not where the price goes next — spikes in both directions are common right after news. When the whole market moves at once, dozens of coins spike in the same candle, and individual signals say less than the market move behind them. Volatility is a measure of risk and attention, not a direction.