Many factors cause stock volatility. They include conversations on social media platforms, a company’s macro environment, and earnings reports.
So, what is a volatile stock? It’s stock with drastic price fluctuation. For instance, some stock prices change by over 5% daily or on certain days.
The Pros and Cons of Day Trading Volatile Stocks for Profits
So, what is volatile stock likely to cost you? Here’s what you should know.
Pros
Volatile stocks have attractive returns. You catch the price trend at the right time and watch it rise. Additionally, trading such stocks has a comparatively low entry position price. There’s usually low market demand at that time.
Cons
Despite a low entry price, your investment risk is high. You might incur significant losses if you forget to place a stop-loss order.
Trading Volatile Stocks: Expert Tips and Tricks
Your strategies should maximize the profit potential of volatile stocks. Therefore, you’ll require technical indicators and other tools to help you select the best stocks.
For example, you can use a five-minute chart to search for short-term price trends.
Your take profit should be at least twice the risk, which is the difference between entry and exit points. A trailing stop-loss is another strategy to protect your investment. It’s similar to a stop-loss order. However, it trails behind a stock price to lock in profits.
Another way to trade volatile stocks and minimize losses is during the day. Anything can happen when you leave a trade open overnight.
Volatile Stocks for Day Trading: Analyzing Past Performance and Future
There are many ways to monitor volatile day trading stocks prices. For example, you can analyze intraday volatility or regularly volatile stocks.
Market indicators to help you navigate volatility include the moving average and relative strength index. Additionally, a stock scanner can filter the ones with over 5% price movement per day within the last few months.
