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Trading Volatile Stocks
Trading volatile stocks can be very profitable. Trading volatile stocks can also be treacherous to those not skilled in the use of technical analysis of stock prices. Trading volatile stocks is the province of technical traders and is best engaged in by those skilled in the use of Candlestick analysis. The price of a stock is volatile when fundamental analysis is uncertain and traders are all over the board with their opinions as to where the price will go next. It is in these situations that Candlestick chart analysis excels in predicting stock price movement. This works because, even when trading volatile stocks, stock price patterns repeat themselves. Using technical analysis tools like Candlestick pattern formations allows the trader to benefit from the learned lessons of history. Using Candlestick trading tactics when the market is volatile can allow traders to profit from uncertainty of others. It allows traders to benefit from anticipating the results of when other traders fall prey to the trading psychology of fear and greed that can fell an otherwise skillful trader.
The point of trading volatile stocks is that there is potential profit in the large rises and falls in stock price during chaotic trading. A useful adjunct to reading market movement with Candlestick patterns is to engage in options trading while the market is volatile. When buying calls or buying puts on a stock the trader limits his investment risk to the premiums paid for each call or put. He, nevertheless, can profit greatly when a stock price moves in the direction that his Candlestick chart formations imply that it will. In the case of a call option the trader pays for the right to buy 100 shares of stock per options contract. He will do so if the price of the stock moves significantly above the strike price of the options contract. As he is under no obligation to buy the stock he will only lose the price paid for the contract if the stock price goes down. When the trader buys a put on a stock he pays for the right to sell 100 shares of the stock, which he will do if it goes down in price. As with a call option he is under no obligation to exercise the contract and will only lose the price of the premium if his analysis of the stock price turns out to be incorrect.