Leveraging Technical Indicators for Trading Volatile Stocks

Author: George Davis



How to trade volatile stock using trading indicators



While some traders might be looking for safe investments, others are inclined towards high-risk and high-return ones. Trading high-return stocks require knowledge about stock volatility and trading indicators.

A volatile stock is quantified as the average difference between the high and low value of a stock divided by its share price. For instance, a stock worth $100 moves at a variance of $15 is more volatile than a stock worth $200 but moves at the rate of $5 or $10. This is because the percentage change in the stock value is more significant than the latter.

However, traders that seek high profits are often faced with two questions. How to find volatile stock and how to trade volatile stock using trading indicators?

How to Find Volatile Stock?



Finding the most volatile stocks doesn’t require extensive research or in-depth market study. Instead, there are plenty of online free tools that can do the work. Applying strategic filters narrow the search results and high volatile stocks become visible.

StockFetcher is an excellent example of filters you can use to find high volatile stocks. Applying these filters will narrow your search results to stocks with average moves greater than 5% over the past 100 days. Users can also filter stock prices and set a range according to their budget. Finally, selecting “Exchange is not Amex” will cause ETFs to appear in the search results.

How to Trade Volatile Stocks with Trading Indicators?



Volatile stocks are fast movers and require patience in waiting entries and swift actions when such entries appear. Here are two trading indicators that will help you trade volatile stocks.


A graphical representation of Keltner Channels



1. Keltner Channels

Keltner Channels is a useful indicator for trading in high trending markets where the stock price moves quickly. The kilter channels put a lower, middle, and upper band on a stock chart price. During a strong uptrend, the price will ride the upper band, and a moderate drop in the stock prices will barely reach the middle band and not go below the lower band.

Therefore, mid-bands become the entry point, and the exit is slightly above the upper band, while the stop loss is placed two-thirds of the gap between the mid and low-bands.


A graphical representation of Stochastic Oscillator



2. Stochastic Oscillator

Volatile stocks often settle on a range before they move to another trend. The Stochastic Oscillator is another indicator useful for trading such stocks. The strategy is to utilize the stochastic oscillator on stocks that don't have a well-defined trend or ranging stocks. Since volatile stocks are prone to movement, any sudden or intense change has chances of a large loss. The Stochastic oscillator provides confirmation of a market reversal and a rise in selling price.

The Stochastic oscillator can predict the most volatile stock prices, and the best time to sell is when the stochastic moves above 80 and falls below.

Ending Note



Volatile stocks are often attractive to a trader because they provide quick profits. However, trending volatile stocks provide greater profits, and traders have Keltner Channels to predict stock movements. Moreover, stocks that don't often trend move back and forth. The Stochastic Oscillator is excellent for trading such stocks and knowing when to sell them.

For more information on the stock market and trending industrial practices, we recommend subscribing to the PT Premium Service in the Proficient Trader App