Volatility Is Your Friend. Is It?

Trend Is Your Friend. Is Volatility Too?

“Trend is your friend” is a popular Wall Street saying that has been around for decades. It has its origin in the trend following trading style, which believes that it is better to ride long trends (up or down) rather than trying to pick exact tops and bottoms in the market.

Along these lines, I have recently heard the phrases “Volatility is your friend” and “Volatility is not your friend” a few times. Which one is right?

The Answer: It Depends

The answer, as most answers in finance and investing, is “It depends.” (on a couple of things, including what you trade, how you trade, how big position you have, who you are, and what your time horizon is).

Here you can find a detailed discussion about (high) volatility being good or bad for traders in the short term and in the long term:

Is Volatility Good for Traders?

By the way, if you are wondering whether volatility itself is trending or not (it is usually believed to be mean reverting), see:

Is Volatility Mean Reverting?