Retail traders often opt to trade in high volumes of stocks that show significant price fluctuations. There are a plethora of such stocks that show a wide range of price changes. Before we begin on How to Find Volatile Stocks, let’s take a look at the concept of volatility.
It is the extent of price changes of stock in a given period of time. It can be either the breadth of the difference between the high and low prices of the stock. In other words, the more the prices of a stock are stable, the less volatility it has, and the stock is more volatile if the prices keep fluctuating.
Any specific event does not determine the volatility of a stock. Any stock can see movement in prices with or without the occurrence of any special event or news flow. This implies that even the random arrival of relevant news related to a stock can push the prices, in both the directions.
Is it good or bad?
As an investor, the major question that arises here for you is if volatility is good or bad. As per analysts and researches, periodic volatility is healthy. It is highly beneficial for investors if they can take advantage of the price swings. To be more specific, due to high volatility, an investor can buy the stocks when prices are lower than the value and then sell them when they go beyond the market value, to reap in the profits.
How to determine volatility?
It is a relatively broader concept; therefore the term volatility has different meanings for different investors. There are a plethora of criteria, concepts, calculations, and tools that can be used to find the most volatile stock. Hence, every investor is looking for something different. Here are a few common causes:
- Highest price range, meaning the largest difference between the highest and lowest prices for the day.
- The stock with most advances or decline in prices in one trading session.
- Active stocks with the highest volume.
- Active stocks based on the most volume
- For many, it can be simply based on the calculations and past data.
Every trader looking forward to dealing in volatile stocks must first determine his own definition and standard to determine which stocks are volatile.
How to Find Volatile Stocks?
Although is not easy to find the volatile stocks, it is essential to know to make the most of the opportunities. For analyzing and finding, there are a few methods that are commonly used by investors.
As an investor, who is looking out for the most active stocks, you can go forward with the following ways.
Determining the most volatile for swing trading:
This type of analysis is generally used under the cases when you wish to look for stocks with the highest price range and dramatic changes within a day or maybe even a single session.
As a swing trader, you might need to focus majorly on two things, i.e. price and volume. Similarly, buying the stocks of top traded companies might bring you large volume but at the cost of negligible price fluctuations.
Many stocks have really large volumes to be traded, but if the highest and lowest price of that particular stock is not significantly high, it would not be beneficial for you. For this, try to expand your horizon and look beyond the A-List stocks. Your focus must be on finding that stock which has both, a wider range of fluctuation and a considerable volume to deal in as well. The inter-relation between price and volatility entirely depends upon the amount of money to be invested by the trader and the time he is willing to hold it for.
To find out the most volatile stocks:
- A list of top stocks is made out of the whole lot being traded on the BSE.
- An average sample of 30 days is taken into account.
- Most common stocks are picked.
Value over volume:
While volume and price are important criteria for every investor, the value cannot be ignored. Many of them rely solely on volume. A stock with a high price range might not produce high volumes depending on the number of stocks but be beneficial if it creates good value for the investor.
Therefore, more consideration must be given to the value, that is the money a trader will invest, over the number or quantity of shares that can be bought with that money.
You might have seen the volatility index written along with the stocks that are traded both on NSE and BSE. If you still wondering what it is, let us enlighten you. The volatility index is the percentage by which the prices of stocks or the stock market is expected to change during the next 30 days. So, if you see the volatility index at 20, the investors expect that the market will change by 20%. It helps one in predicting the future market trends, price fluctuations, and determine in which direction the change will be.
Volatility Index can help the traders to make the most of the market conditions and multiply their investments. There are plenty of third-party tools and software as well, which can help one monitor the fluctuations and find the most volatile stock being presently traded in the market.
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