High-volatility stocks have the potential to change prices rapidly, allowing a trader who gets on the right side of the price change to make some quick profits. For an investor managing a portfolio of stocks, trading more volatile shares could add some bonus gains to the larger portion of long-term holdings. While each investor needs to develop his own strategy concerning timing and price direction, some readily available tools will help you pick out stocks and control their prices for sale or purchase.
Finding High-Volatility Stocks
A stock screener can be used to develop and update lists of high volatility stocks. You need a screener that will rank stocks for implied volatility. The volatility measurement is derived from the prices of options that trade against a stock's predicted share price. An option's screening tool will also allow you to locate high-volatility stocks. Any options screener will be able to rank option contracts for implied volatility, and the stocks covered by those options will be the same as those a stock screener with implied volatility criteria would list.
Setting Up a Trading Plan
Stocks that change a lot in price offer a trader several ways to take advantage of those price swings. A day trader works his list of high-volatility stocks to look for price moves during the market day, jumping on and off of fast-moving stocks in minutes or hours. Swing trading involves looking for stocks that change price direction every few days and setting up a trading system to ride the trends between price reversals. A wide range of price analysis and prediction tools can help an investor to develop a personal trading system.
Using Brokerage Order Types
The different order types that can be used to enter stock market orders through a brokerage account allow the investor to control the prices where he buys and sells. With limit and stop orders, the trader controls the price of his trades in volatile stocks. For example, an investor may set a limit order to buy shares of a stock when the price hits $25. Then when the order is filled, a stop limit gets him out if the stock drops to $23, limiting a loss, and a sell limit order at $30 locks in a profit if the stock moves up as predicted.
Online Trading Considerations
The website of the Financial Industry Regulatory Authority -- which governs brokers -- offers specific guidance to traders in volatile stocks or a volatile market. The FINRA information warns traders to ask their brokers how online trades are managed when the volatility increases in the market. FINRA notes that while an online account allows trades to be entered very quickly, there can be times when the completion of those orders could be delayed on the broker's end. The agency encourages traders to become well informed concerning broker practices before trading in high-volatility issues.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.