Understanding market volatility can help get more profit by using bigger profit targets than if volatility wasn’t considered. The Chicago Board Options Exchange (CBOE) reports a Volatility Index that quantifies the market's expectation of 30-day volatility. Losses can also be reduced by improved risk management using market volatility data. The Volatility Index (VIX) can also suggest how quickly a market may move from one price level to another.

Implied volatility is mostly used with options but is also used to calculate the VIX Index. The VIX Index is constructed using the implied volatilities of a wide range of S&P 500 index options. Implied volatility is calculated by the current price of an option based on Black Scholes Pricing Model. The solution of this pricing model calculates a mathematical volatility based on option price. The VIX is widely used measure of market risk and is often referred to as the "fear index”.

The other type of volatility is Historical Volatility, which is a measure of price fluctuation over time. Historical volatility uses historical (daily, weekly, monthly, quarterly, and yearly) price data to empirically measure the volatility of a market or instrument in the past. The value rendered by a historical volatility study is the standard deviation of bar-to-bar price differences.