Volatility is an essential but dangerous component of investment. On the one hand, the capacity for the price of a security to swing back and forth around a mean provides investors with opportunities to profit using strategic buys or sells of that security. Taken slightly differently, assets that investors broadly consider "volatile" tend to attract investors more willing to take on risk; in this sense, volatility is an important way for an investor to evaluate the suitability of a particular asset given her risk tolerance.
However, volatility is also notoriously complex and difficult to assess. An investor able to consistently and accurately understand the implications of volatility might have tremendous advantages compared to rivals, but of course, this is too good to be true. So, how can volatility work for a retail investor in a way that minimizes risk?
