February 15 - Stevan
What is volatility? Find out why it's a double-edged sword that can offer you both reward and risk...
Volatility is all about the fluctuations in the price of a share, index, currency or commodity. Your ex-girlfriend with the crazy mood swings may have been emotionally volatile but surprise surprise, stocks can also behave a lot like people. (Though they’re less likely to drunk dial you after you part ways with them.)
The price of an investment, whether it’s a stock, currency or commodity, can only move in three directions: up, down or sideways. Yes, sideways means it stays steady within a certain price range – so these investments are said to have low volatility. Then you have stocks that go up and down like they’re in a Zumba class or make erratic, unpredictable moves in either direction. These obviously carry higher volatility. For instance, GoPro is one of our favourite volatile stocks to trade.
The speed and amount of price changes tell you how volatile a stock is. Does it move up and down rapidly in a short amount of time? Does it dramatically spike one day only to plunge the next? Boom, you’ve got a volatile stock in your hands.
Remember the “Crazy/Hot Matrix” Barney Stinson laid out on How I Met Your Mother?
While there are ways to measure volatility, forget looking for “unicorns” that offer zero risk and high returns when it comes to the stock market. Why? Well, before you jump to the conclusion that highly volatile stocks are risky bets that are best to be avoided – bear in mind they can also reap greater returns for opportunistic traders.
So think of volatility as a double-edged sword as it can offer both reward and risk!
Find out how to handle stock market volatility and profit from it like a pro trader.
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