Volatility Targeting
a.k.a. Vol targeting, Volatility control
Adjusting position size so a portfolio's expected volatility stays at a set level: smaller when markets get wild, bigger when they calm.
Volatility targeting sizes trades by how jumpy the market is. If a fund aims for 10% yearly volatility and markets suddenly get twice as wild, it roughly halves its positions. When things calm down, it scales back up.
It keeps risk steadier over time. The side effect: when volatility spikes, many such funds sell at once, which can make a sell-off worse. Retail traders use a simple version when they size positions by ATR.
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