4 Basic Essential Stock Moves in Times of Volatility
Each day in the stock markets sees a new low and high and sometimes flat with no
direction. We have seen a kind of pace and free fall in this volatile market. It may
surprise you there are various proven methods to deal with volatile and uncertain
markets. In case you are unsure of how stocks move, you can see how to open a trading
account along with a Demat account.
Volatility
The degree of change in stock prices is called volatility. Volatility can also be defined as
a statistical measure of returns for an asset. When a stock price fluctuates wildly or
moves unevenly and unpredictably is called highly volatile stock whereas a stock
maintaining a relatively stable price is called low volatile. Ideally, if the stock market
goes up and down more than 1% continuously over a period of time, it is a volatile
market that decides whether it is a bull market or bear market, or the so-called bunny
market.
There are different criteria and statistical models applied to assess volatility. Ideally, if
the stock market goes up and down more than 1% continuously over a period of time, it
is a volatile market that decides whether it is a bull market or bear market, or the so-
called bunny market.
The volatility of a Stock
Volatility is a wide-ranging term that differs from trader to trader. For example, some say
it is the largest difference between the high and low price of stocks in a day whereas others say it represents the most active stocks with the highest volume while some say it is a complex calculation based on mathematical models from historical data and so on.
Fortunately, specific tools and applications are available to determine stock volatility.
Following is the criteria to measure a stock’s volatility:
➔ Most active by share volume.
➔ Most advanced in the trends.
➔ Most declined stocks.
➔ Most active by currency volume.
You can check the most active stocks at the official website of stock exchanges.
Essential Moves for the Volatile Market
The positive side is that volatility increases the potential to earn more quick profits. But
a highly volatile market is inherently riskier; however, this risk can be minimized by
taking some essential moves.
1. Revisit the risk control measures
Before trading in a volatile market, be prepared to manage the risks involved with the
risk control measures you have as part of your trading strategy. Two main measures are
position size and stop-loss placement. In the volatile markets, you should place smaller
trades and apply a wider and strong stop-loss than a quieter market.
2. Focus on stocks trending with the market
Investors are suggested to look for stocks that are trending in the overall market
direction only. It will be a key opportunity to trade in a volatile market where a trader can
generate quick profits than quieter markets, even after a higher degree of risk.
For example, if the market is in an uptrend, you need to search for a stock that has
been trending higher. If you are selling short in a volatile market, you need to look for a
stock that has been declining. The primary focus should be to enter before an
acceleration in price. Keep in mind the word acceleration.
3. Do not jump in and out of the market
Successful trade requires getting in and out at the right time only which is very difficult
to determine. It is suggested by experts to avoid frequent entry and exit during volatile
markets. They look at the down market as an opportunity instead of fearing it and
suggest investing in potent companies at lower prices.
4. Adopt shorter-term strategies
Traders are suggested to consider a shorter-term trading strategy during a volatile
market. You need to set a specific percentage as the profit target. You should hold
positions rather than quickly exit. Use an overbought/oversold type indicator.
The Bottom Line
When day-to-day stock price swings are greater than normal movements, it is a volatile
a market where you can manage your trades with a dependable broker like
Financial Securities Limited Demat account which offers up to 99% savings on
brokerage for delivery trades and an advanced trading platform for trading in the real-
time.
