How Short-Term Investors Find Volatile Stocks

Whether you tend to opt for long-term or short-term investing strategies, figuring out a way to identify volatile shares can mean the difference between success and failure. Long-term profits tend to come from finding stable, solid corporations whose daily share prices move within a rather predictable range. But when the economy hits rocky times, even the oldest, most reliable blue-chip shares can bounce up and down within a few hours. For less stable securities, usually issued by newer, smaller entities, volatility is par for the course.

Knowing how to day trade, invest in the long-term trend, or master the art of short-term swing trading means being able to spot price volatility before it happens. How do experienced entrepreneurs do it? Of course, this ability is most often used by day traders, but anyone can make good use of seeing price surges and dips in advance. Here are some of the tried and true methods for uncovering volatile price swings before they happen.

Use Stochastic and Band Indicators

Most trading platforms include dozens of common technical indicators to assist buyers and sellers of securities. Two of the most useful metrics are stochastic and band indicators. In short, these complex mathematical algorithms help you identify price ranges in which stocks trade. Their value lies in the fact that you can usually see when a given security is beginning to behave erratically and break out of the price channels. When that happens, it’s possible to more easily predict near-term swings that tend to revert to the channel or break out of it on the opposite side.

Consult Volatility Indices

There are several popular volatility indices that individual and institutional traders use to gauge how erratic the day’s session is or how volatile price action is for specific securities. Most professional traders consult one or another volatility index at least once per day when they have active positions on the line.

Look at the Day’s Range

A simple and often very reliable way to see if your favorite stocks are acting up is to study their recent highs and lows. If you hold a large position in ABC Company, for example, and their stock has never ventured above $50 or below $40 for the past year, you have some pretty powerful information in your hands. When ABC breaks above that $50 mark, it might indicate a short- or long-term rise. Watching the cost range for a single day is an even more powerful tool for investors and can be part of a set of tools to help predict fast swings.

Keep an Eye on the News

There are many theories, some of them quite academic and complex, about how to incorporate news items into stock market analysis. One simple way to use the news is to simply follow the major developments in the economy. Additionally, try to follow news that pertains to companies whose shares you routinely buy. There’s no need to be an expert analyst, but knowing the general state of the national and world economies can give you a feel for whether securities’ trends are moving up or down.