What is volatility ?
The volatility measures the risk. The risk is it a result of distribution of prices measured by the standard deviation. The standard deviation is an average deviation from the mean and that is what we call volatility. In other terms, it measures the amplitude of fluctuation (highest - lowest in a given period). The higher the volatility, the greater the risk will be important. In return, it will be faster to make a profit which can attract many investors. The choice of traded pairs will be made according to your profile.
Volatility tends to give further emphasis to large differences. It actually indicates a level of risk but the measure of the risk is not totally efficient.
Indeed, we do not know the profile of the average deviations. The differences can be regular or very irregular. For example if we say that the EUR / USD ranges in averaged by 300 pips per day, it can conceal the fact that during some days the parity varies from 600 pips and the other from 0 pip. Volatility have to be taken with distance.
Another criticism that can be done, the volatility does not provide information on the distribution tails. These are events that have very little influence on average because they are very rare. The EUR / USD has a volatility of 1000 pips on the day is such a rare event. Because of the number of distribution take into consideration in the calculation of the volatility, the move of 1000 pips, which is an exceptional event, will have a very little influence. However, the risk is there.
