Downside volatility
How do you measure only the price swings that hurt a long position, ignoring the ones that help it?
In plain words
Downside volatility counts only the negative price movements over a period, leaving out the gains. Usual volatility treats up and down moves equally, so two markets can look equally volatile while one fell sharply and the other simply swung both ways.
Why it matters
A long position only feels the down moves. When downside volatility is much larger than total volatility, the risk being carried is concentrated in drops, which changes how drawdowns, stop distances and sizing should be read.
In a real week: BTC, week of 10 May 2021
In the week of 10 May 2021, BTC's annualised realised volatility was 108.2% and its weekly return was -20.28%. Its worst day fell 12.42% on 12 May, and its largest single hourly move was -6.25% at 23:00 UTC that same day, while its best day gained only 1.53% on 11 May. The week's largest recorded moves were all downward.
A common mistake
Reading total volatility as if it describes the risk to a long position. A market can show high volatility entirely from gains, which costs a long nothing.