High volatility in Online Stocks Trading
Volatility is a controversial aspect of any tradable asset. When you are trading stock online, you should more or less be looking for stocks that are somewhat volatile because they are the ones that provide the best bang for your buck. This is due to how much the price of equity can move or deviate from its average daily ranges. If a stock in any given trading session moves about $10 it’s considered considerably volatile, but this is always relative to its initial going price of course. Low-priced stocks with daily moves of a few dollars are considered more volatile than those who have ups and downs in the range of $20 but are worth $200 each. The more volatile a stock is, the higher the potential for profits and therefore it’s much more efficient to trade during times of volatility even if that exposes you to a significant degree of risk on the downside.
On the other hand, some experienced traders in online stocks would argue that volatility should be avoided since historically most consistent profits seem to be made in the quieter stocks which are slowly trending upwards. This also provides the advantage of not having to monitor price action as diligently in order to sell or buy immediately in case of a bout of volatility and wild price movements.
What stimulates volatility
Online stocks aren’t exactly considered the most volatile investment vehicle but the stock market, in general, can be easily affected both by the current performance of the underlying company, as well as from external factors that may have an impact on global political and economic events like the recent trade war between US and China.
Therefore, when a publicly traded company like Netflix or Apple make an announcement regarding their quarterly earnings reports, for example, traders will be anticipating specific results according to the companies’ previous statements and current overall performance. If these expectations are met with a surprise in the financials and the company didn’t perform as expected, you can expect that this will inject some volatility in the affected stock until the market corrects itself to its normal daily highs and lows.
How to trade stock online during volatile events
In order to be able to trade online stocks efficiently while still making sure not to expose yourself to too much risk, you need to be able to familiarize yourself with the stocks you will be trading, proper risk management rules and trailing stop-losses to secure profits while simultaneously having a safety net in case the market moves against your position. Trailing stop losses are quite effective since they move along with the stock rate instead of normal stop loss order which mainly acts as a breakeven or loss cushion.
If you aren’t diligent with your stop-loss or trailing-stop orders, you should ensure that you have fast enough reflexes to compensate.
At the end of the day, it all comes down to your risk appetite or aversion. Yes, if you seek short-term returns and the exhilarating pace of fast-moving markets and equally fast gains – you should focus on finding volatile buy highly traded stocks. On the other hand, if you prefer to balance your investments around a retirement strategy then it’s much better to go with a more conservative approach towards capital appreciation and volatility isn’t the best part of a risk-averse strategy.
If you are a day trader wishing to capture price movements to start compounding your gains, then volatile stocks should be right up your ally. As long as you are vigilant enough to catch those movements and plan your trades accordingly, you should be able to get in and out while securing enough of a profit to make it worth the risk.
Trading stock online isn’t much different than any other asset in the sense that you need to do your research and have a solid plan before you even start investing. Traders who seek out the volatile stocks are more biased towards technical analysis and favor technical indicators like Bollinger bands that they can use to monitor a market for volatility and analyze price action accordingly. However, keeping up with the fundamentals is equally important, especially when trading stock online. As already mentioned, you need to stay abreast of any quarterly reports and financial announcements regarding the stocks you will be focusing on as well as the indices they are a part of in order to get a clearer overview picture of the sector.
For some traders, high volatility is one of the most important conditions when monitoring a stock. The profit potential increases with higher and faster price movements but a certain degree of skill is required in terms of analyzing price action in order to take advantage of the opportunities presented. Risk management should always be a top priority when trading stocks that are in a volatile zone so as to protect from large percentages of invested capital.