How To Measure The Volatility Of A Stock(Advance)

Today, you’ll learn how to measure the volatility of a stock.

Including:

  • What is the volatility of a stock?
  • Why is volatility important?
  • Using Excel Spreadsheets
  • Is day trading reliable?

When I started trading in the stock market, many stock gurus fooled me because they told me that day trading is profitable.

First, I learned to select and trade liquid stocks every day by following a system to earn a living. Second, I have to exit all positions I have before the end of the day to reduce the risks.

One of my fake mentors said, “the longer you hold the stocks, the higher the risks.”

However, I did not make any money in the market because there is no volatility.

High liquid stocks do not move more than 1% daily to day trade it profitably.

If you believe you can trade daily, you are losing money now because the market moves with fundamentals.

I don’t blame you today because you did not know the reality of stock trading.

Most trading educators have a conflict of interest to persuade you to trade every day.

Well, if you look at the statistics of highly liquid stocks, you’ll be shocked how little the stock can move in the short term to profit from it. (Source)

Later, I will show you how to measure the volatility of the stock to see if you can make money.

I’m not saying you can’t make money trading daily to ignore it completely.

However, If you don’t believe me, I’ll show you proof about the lies taught by those so-called trading educators.

Several years ago, I had a belief that I can leave my day job and trade for the rest of my life.

However, the reality was different in actual practice because it is the opposite.

If you want to breakeven in stock trading, the price must move at least 3% to cover the commission and spread. However, in a highly liquid stock like APPL, the probability of more than a 3% move is only 1%.

What is the volatility of a stock?

Volatility relates to the swings of the stock in either up or down related to the security to measure the risk. (Source)

The question we often ask is what is volatility in stocks to earn in stock trading?

Most trading websites consider one percent volatile in trading because they know that prices do not often move above that.

Well, they are not showing us the truth to make us trade more.

They often teach us that a volatile stock is riskier to entice us to select slow-moving securities to provide brokers liquidity.

If you believe them, you’ll be day trading a non-moving stock, and you’ll never make any money from it.

There are many ways you can measure the stock’s daily movement to know the normal range.

However, in this post, I will use excel to show you the statistics in the last nine years of APPL.

The security is highly liquid, and you will see below whether you can apply any day trading strategy.

In this post, you will learn to avoid short term strategies to become a profitable trader.

Below, you’ll learn why higher volatility in stock trading is essential to avoid slow-moving stocks.

How can you make money in an intraday chart?

Volatility for day-traders is nonexistent when trading in the short term to earn anything.

You will be like throwing darts every day when you do it.

Well, you can do better in stock trading when you select the low volume and high volatile stocks.

Okay, let’s go back to our topic to learn more about it.

Volatile stocks are riskier in the stock market, and it can also make you more profits because it can move fast.

You can use the ATR indicator in the chart to see if you can capitalize on the volatility.

Well, some traders do not use it because they want to compute it manually.

However, if you do not have trading software, you can use an excel spreadsheet to measure the volatility of the stock.

Below, I have prepared a video to show you how easy it is to do.

Why is volatility important?

If you want to make money in stock trading, you have to choose volatile stocks.

Most professional traders follow assets that move to capitalize on it.

However, new traders believe that slow-moving securities are profitable to avoid elevated risks.

When I started trading, I was trading high liquid stocks only in the market because most of the trading educators recommend it.

Conversely, most of the time, the price of security does not move because of liquidity.

Later, you’ll see that even AAPL stock moves less than 1% only to help you avoid with day trading.

On stock volatility, you can make money when stock trading to capitalize on the increase or decrease of the price.

I’m not saying you can’t make money trading Apple, but it is difficult to earn if you do it in the short term.

Day trading does not work because stock prices do not move fast enough to earn daily.

Well, I will prove my point today to warn you about short-term trading.

Can you make money on a stock that does not move?

If you buy and sell the same asset at the equivalent price, you will never make money in the short-term.

When day trading, you will close out your positions before the end of the day usually to determine your profit and losses.

How can you make any money in day trading when the stock price does not move?

If you believe those so-called day traders, you’ll be in big trouble because how can you make money with a less than 1% move?

Again, to profit from trading, you need at least 3% to cover the spread and commissions.

If you use leverage in your positions, you will amplify your losses because your risk is larger.

However, you can still make money in stock trading if you use a longer timeframe to capitalize on large market moves.

I will not teach you in this post to focus on the daily timeframe.

Okay, let’s talk about how you can calculate or measure the volatility of the stock.

Excel Spreadsheets

How to determine volatility of a stock?

You can use excel in your computer to measure the volatility of the stock

You can download a stock’s historical data from Investing.com for free to analyze the degree of rises and falls of its price.
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1. Go to the website and search stock to use it later.

2. Click on the Historical Data.

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3. Choose the daily timeframe

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4. Set the date range

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5. Download the data.

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You can download almost all stocks in the supported stock exchanges anytime to make your trading decisions based on data.

Well, the website provides free access to help every trader in the world.

If your stock exchange is not available, you can go to your market website to download data.

You can watch the video below to learn more.

The video above shows that high liquid stocks do not give enough daily volatility to day trade effectively.

You can see that there is no opportunity in APPL stock to extract profits from day trading.

However, you can go to a longer timeframe because it has more volatility.

If you add daily moves, you can have 5% or more price movement’s weekly/monthly to earn from the markets.

In reality, you can make money on longer time period only because volatility is actual low.

Brokers and the so-called trading educators will encourage traders to use leverage to set a distorted view of the markets.

When you go back to the first video above, Anton Kreil said that professional traders allocate 80% of their time on fundamentals and 20% on technical to profit in the long-term trends.

You can’t rely on technical analysis only because the real drivers are the catalysts.

Wrap Up

You have to measure the volatility of a stock in the market to avoid more losses.

In this post, you can see the real range of the stock to avoid day trading.

Well, if you did not know how to compute volatility, you will believe those so-called trading educators.

You have to study the stock you like to buy because it may not give you real opportunities.

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