With all the attention lavished on volatility, it’s a little surprising so few people make an effort to distinguish between "good" and "bad" volatility.

After all, volatility must exist for a trader to profit; if the market doesn’t move, you can’t make any money. The key, of course, is the market must move in your direction. Volatility can be quantified any number of ways, but determining its quality — whether it’s good or bad — is another story.

There are two basic ways of measuring volatility. The most common and easiest to understand is the true range method, which differs from the standard range calculation (high minus low) by incorporating the gaps between price bars. The greater the true range relative to price, the more volatile the market.