How to trade volatility, which can make you Anxious as well as Rich

This simple calculation would have given you a return of Rs. 36,000 in 5 days.

Volatility has huge impact on trading and the outcomes of trading. It is also associated with Risk. So initially one needs to understand what is volatility, how to measure volatility and finally how to make best use of the volatility so as to make gains out of trading.

make you Anxious as well as Rich

Many traders use different methods of calculating volatility. But how can a normal trader with low access to systems and without much knowledge can use simple method and get benefit out of it. We could think of only one simple way to do it.

Read more to understand how this can help you.

The volatility of a stock or index is directly proportionate to the increase or decrease of the stock price. Specifically speaking, the two different stocks having same stock price may have different volatility values due to the nature of business, news, trend and many other factors. Generally the stocks or indices has high volatility at the time of opening or closing of market hours. The volatility is also important in order to sizing the position, balancing the portfolios or assessing the risk in the portfolios.

The volatility of a stock or index is calculated in different ways.

1. Change in price over ‘n’ number of days
2. Maximum & Minimum price fluctuation during ‘n’ number days
3. Average True Range over the past ‘n’days
4. Sum of the absolute price changes over ‘n’ days
5. Classic Annualized volatility for daily data

Volatility is very much the necessity for many traders to achieve success. Unless there is volatility they cant take the benefit of the up and down swings of a stock or index.

Time Period is important element for measuring the price-volatility relationship. The longer the time period the volatility value is also high & so as to smaller time frame the volatility values are lower.

In simple words, Volatility is a measure which helps the traders to calculate the up or down move of a stock price over a particular period of time.

For example if a trader wants to know how much upside the stock can travel in coming 7 days. He has to understand what is his previous 7 days net change in price (if we go by the method 1)

If UPL has moved approx 46 rupees in last 7 days to a base price of 722. i.e. the net % price change is 6.37 %. So if a Buy Call is given at price or Rs. 690 considering 6.37% net change in price, UPL can move by Rs. 44/- can reach to 734 in coming 7 days.

(This is the simplest but not the only way to calculate the volatility. However there are other accurate or complex methods in to existence.)

This is what exactly happened to our Recommendation last week. We Recommended UPL @ 690 with a conservative target price of 720. The Stock Zoomed to 736 in 4-5 days.

Case Study :
Stock : UPL Ltd. | Reco. : BUY | Rate : 690 | SL 670 | Target 720

Observation :

  • UPL has fallen to 672 on 22nd 18 from a high of 733 made on 14th Feb18
  • A buy signal was getting formed with EMA 5,20 Crossover at Rs 690 (see point1 ) being the intersection point of the two averages
  • A stop loss was placed @ 670 (see point 3) below previous low of 673 with a conservative target of 720 (see point 2

No need to mention that the stock skyrocketed to 736

That’s why the Traders love volatility over no volatility.

Our previous weeks recommendation Glenmark pharma was booked at 552 returning a profit of Rs 24,300

How amazing is this, isn’t it!

What do you need to do is ask 3 Questions to yourself

  • What do you trade a stock price or volatility ?
  •  Have you ever wondered what the word Volatility means & how you can use it for making profits ?
  •  How I can find more about volatility & it’s use?

Trading Mantra
“To win the game you need to be in the game and to remain in the game you need to fight small small battles, With YOURSELF“.

Chandrakant Deo