I vividly recall the day I observed my portfolio suffering a significant unforeseen loss in under three hours. It happened in 2020 during the “Covid crash,” where I had neglected every tenet of risk management amid a particularly turbulent phase in the equity markets. Sitting there, watching my trading terminal flashing ominous red numbers, I absorbed a lesson about market volatility that no business school could have imparted.

Volatility is not your adversary — it is your best chance. But this is true only if you know how to leverage it. Modern markets move with remarkable rapidity. A presidential tweet, a supply chain interruption, or an unexpected Fed announcement can trigger a dramatic plunge or surge in asset values within moments. For investors, these erratic price movements represent both significant risk and remarkable potential.

The volatility paradox: How chaos creates opportunity

Volatility prevails in all liquid markets — stocks, bonds, currencies, and commodities. Concurrently, while some market assets may be traded with high volatility, others progress at a more moderate pace. Therefore, volatility is not assessed in isolation; it is consistently measured relative to similar instruments within the same sphere.

Volatility creates asymmetric opportunities that simply don’t exist in calm markets. When fear grips investors and assets are sold indiscriminately, diamonds get priced like rocks. When euphoria takes hold, even mundane assets can reach absurd valuations.

These inefficiencies create pockets of opportunity that the prepared trader can exploit. While large institutional investors are often constrained by mandate or size during volatile periods, nimble investment boutiques and family offices can move quickly to capitalize on mispriced assets.

Even with wars, pandemics and trade issues, the market has kept growing. If you invested $10,000 in the S&P 500 in 1980, it would be worth nearly $1.5 million today. History shows that staying invested through tough times can pay off.

Yet the road to profiting from volatility is littered with the wreckage of failed investors. The challenges are numerous and unforgiving.

When markets get shaky, prices can move fast and without warning — what looked like a solid win can suddenly flip into a painful loss. And just when you’re ready to get out, the buyers disappear, leaving you stuck holding the bag.

Execution risks multiply as well. That trade you wanted to make at $100? It might fill at $105 or $110 due to slippage when markets move rapidly. And let’s not forget the greatest danger of all: our own emotions. Fear and greed hijack rational decision-making, leading to impulsive trades that violate your strategy.

For investment startups looking to implement sophisticated approaches like high-frequency trading, regulatory hurdles add another layer of complexity and cost.

Your volatility playbook: Practical strategies for entrepreneurs

Despite these challenges, I’ve watched numerous startups build tremendously profitable operations by specializing in volatile markets. Here’s how they do it:

1. Automate your emotions away:

Emotions mess with decisions, especially in fast-moving markets. That’s where algorithmic trading comes in. It sticks to the plan, reacts in real time and doesn’t get spooked or greedy. Your algorithm won’t panic-sell at the bottom or get greedy at the top — it simply follows the rules.

2. Follow the rubber band effect:

Markets often stretch too far in one direction, then snap back like a rubber band. That’s your window. Focus on assets that tend to return to their average — buy when they drop too hard, sell when they shoot up too fast.

3. Define your disaster scenario:

Every trade should have a predetermined stop-loss — a price at which you’ll exit if things go wrong. This isn’t negotiable. The markets don’t care about your dreams or your startup’s runway. Protect your capital at all costs.

Set a threshold to automatically exit a trade when things go wrong. This way, you can prevent small losses from turning into catastrophes.

4. Don’t bet everything on one move:

Diversify across different assets (stocks, bonds, commodities, forex, etc.). This helps mitigate the risk of one market crashing while the others still perform.

But true diversification also means using different strategies and timeframes. Apply different strategies across multiple timeframes and market conditions. When one approach stumbles during volatile periods, another might thrive.

5. Learn the art of hedging:

Tools like options or inverse ETFs act like a safety net. They won’t stop the market from dropping, but they can soften the fall — and sometimes, that’s all you need.

6. Walk before you run:

The cemetery of failed trading startups is filled with companies that scaled too quickly. Test your ideas in a safe space first, then ease into the real thing. Only when your approach proves consistently profitable should you gradually increase your exposure. Once you have a feel for what’s effective, scale your operations gradually.

The truth about market volatility is that it separates the professionals from the amateurs. While most investors fear volatility, the prepared one recognizes it as the ultimate business opportunity — a chance to profit precisely when others are paralyzed by uncertainty.

So, the next time markets turn chaotic, remember: Volatility isn’t something to survive — it’s something to capitalize on. With the right preparation, systems and mindset, the most turbulent markets can become your most profitable hunting grounds.