Standard Deviation

Standard deviation measures how far data points tend to wander from their average. Low standard deviation: prices hug their mean. High: they fling about wildly. Traders use it as a basic measure of volatility.

It is the engine inside Bollinger Bands, which plot lines a set number of standard deviations above and below a moving average, and inside the Sharpe ratio. A rough rule: in a normal bell curve, about 95% of values fall within two standard deviations, but markets have fatter tails than that, so "rare" moves happen more often than the maths suggests.