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Volatility how to use it a tool to make profits in markets

What is volatility ? Volatility is a measure of spread of share price range. Or in simpler words volatile stocks are those stocks that move in higher price band. These are also called high beta stocks. Please note that here we are not calculating beta value.

Calculation of Volatility

Though there are various measures to calculate volatility of stocks like standard deviation. For simplicity we will use a very simple formula.
It is Average of (High-low) period.

DateHighLowClose
01/01/1010596104
02/01/10110104107
03/01/10113104105
04/01/101079799
05/01/101049396
For example: If stock price of XYZ share is as shown in the table:
Its 3 days volatility on 3rd Jan will be{(105 - 96) + (110 - 104) + (113 - 104)}/3 = (9+6+9)/3 = 8.

This means on an average this stock has moved by 8 points every day for last three days.

Period of Volatility

A stock or any other asset can be volatile for a small period as low as few min to few months. In TopstockResearch.com we use daily, weekly and monthly volatility.

Why Stock Suddenly Becomes Volatile?

There are many reasons for stocks to be very volatile. Some of them are:


How To Take Advantage Of Volatility.(Novice traders should avoid it.)

1. For Intraday traders.

A stock as a result of some important news moves violently either up or down depending on the news impact. An example of positive news on stocks.

Typical trend to note here to take advantage of this price movement.
  1. Volume should reduce with every passing day.
  2. In candle stick, wick should be longer than body.

2. For swing traders with higher duration

Many stock apart from moving with high daily price fluctuation gives fluctuation on weekly/monthly period. These are the stocks that can be traded for good 5-15 % profit in relatively shorter period.

For such stocks, its best to identify whether stock is in sideways market. To identify such stock one can refer to almost flattish 50/100 day moving average. When ever the price is below this moving average and towards lower range one can buy and exit when it moves above moving average and towards upper range.

To identify such stock refer to
Enter when they are near Price In Lower End Of Sideways Market By 50 Days SMAand
Exit when they are near Price In Higher End Of Sideways Market By 50 Days SMA
Also note that Volatility may proceed a major price movement.

Warning: In general, it is best to avoid share that are highly volatile. Only professional traders may try to take advantage of this.

If you feel confident to play such stocks then we strongly suggest to play with small capital and with a strict Stop loss. Other wise one wrong move can wipe out good portion of your capital.

Stock Screening Based On Volatility:

Related Technical Stock Screener

Most Volatile ShareDaily Volatile Share 5 DaysDaily Volatile Share 15 DaysDaily Volatile Share 30 Days
Weekly Volatile Share 5 WeeksWeekly Volatile Share 10 WeeksWeekly Volatile Share 20 WeeksWeekly Volatile Share 50 Weeks
Monthly Volatile Share 3 MonthsMonthly Volatile Share 6 MonthsMonthly Volatile Share 6 MonthsMonthly Volatile Share 12 Months
Most Volatile ShareDaily Volatile Share 5 DaysDaily Volatile Share 15 DaysDaily Volatile Share 30 Days
Weekly Volatile Share 5 WeeksWeekly Volatile Share 10 WeeksWeekly Volatile Share 20 WeeksWeekly Volatile Share 50 Weeks
Monthly Volatile Share 3 MonthsMonthly Volatile Share 6 MonthsMonthly Volatile Share 6 MonthsMonthly Volatile Share 12 Months

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Total Comments 1

User Comments
Posted by Guest
Posted on: 24-Jan-2014
How can I screen less volatile stocks?


(All analysis is based on End of Trade day's Value. Expected time of update is between 5 to 5.30 PM exchange time Zone)

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