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Trading Volatile Stocks with Technical Analysis
The US stock market is just finishing its most volatile week ever. Automated trading programs seem to be driving stocks up and down in large steps. This is dangerous territory for investors and an ideal opportunity for short term day traders. Trading volatile stocks with technical analysis may result in significant profits during such times.
What Is Volatility?
According to investopedia, volatility is the range of prices for a given stock or index.
it is quantified by short-term traders as the average difference between a stock’s daily high and daily low, divided by the stock price. a stock that moves $5 per day with a $50 share price is more volatile than a stock that moves $5 per day with a $150 share price, because the percentage move is greater with the first. trading the most volatile stocks is an efficient way to trade, because theoretically these stocks offer the most profit potential.
The key to trading volatile stocks with technical analysis and making money is finding the stocks to trade and correctly using technical indicators to trade them. One only needs to run a stock screen for volatility and volume to find stocks to trade.
What is Technical Analysis?
Technical analysis is the reading of price patterns in order to predict the next market movement. These price patterns have statistical significance and are based on many previous market situations.