Make Stock Market Volatility Work for You

How To Make Stock Market Volatility Work for You?

Stock day traders actually want stock market prices to make big moves. A stagnant market where prices don't move or move in very small increments means that money invested in such a market is "dead money".

When stock prices are volatile even a stock with a price that ends down from the prior day can make winning moves during the current trading day (intraday) before ending down at the end of the day. An investor buying a stock close to its intraday low and then selling it after the price rises intraday can make a profit. The trick is finding stocks with such a trade set up.

What are the characteristics of a profitable intraday stock?

Volatility over multiple days backed by sufficient volume that shows there is trader interest in the stock. The volatility has to be over multiple trading days with moderate to big price movement taking place during each trading day. The research to find such stocks is already done for you on the watchlists in the Most Excellent Investor membership area.

The psychology needed to trade a volatile market?

Even after finding volatile stocks that meet the criteria for volume a trader needs to have the "guts" to buy into a stock position and hold that position long enough for the price to rise during the trading day. Because after buying a stock at what can be considered a comparatively low price that price can drift even lower before rising above the purchase price. Check out the case study of the stock below from March 23, 2022.

Case study profitable intraday winning stock: Lizhi Inc. (LIZI)

Make stock market volatility work for you

Intraday winning chart for end of day losing stock

Buying stock symbol LIZI at 9:34 AM on March 23, 2922 for $1.78 would earn a profit of between 1.8% - 9.5% if sold anytime between 9:38 AM and 11:56 AM. A profit of between 3.5% and 8.4% could be made if the position was closed (sold) anytime after 11:56 AM.

Every day there are dozens, if not hundreds, of stocks that trade with sufficient volatility like the case study shown above. With proper stock research and trader mentality a volatile market will make opportunity for big profits!

What happens when an investor sets up a profitable trading strategy but the trading company platform (think Robinhood) limits functionality (trading options) for the particular stock being traded? A potentially profitable trading strategy can lose money because volume is an important part of the trade set up and if purchasing of shares is being limited by the trading platform then entering and exiting a trade is hindered before a profit can be taken. As the saying goes, you make money when you buy so the decision to buy and the amount of shares to buy is key.

Recently when the idea of trading shares of GameStop (GME) went viral it caused so much volatility that some trading platforms like Robinhood placed limits on trading the stock. That angered investors trading on Robinhood due to the fact that a sufficient amount of shares in GME could not be bought that would allow for sufficient profit in the intraday price moves that the stock made. How can traders combat such moves made by stock trading company platforms?

The best way of combating limits placed on trading in specific stocks is to find another stock to trade. Too simplistic? Not hardly. There are thousands of stocks that trade on the U.S. stock exchanges everyday. Many stock traders and investor focus on the price movement of the 30 stocks in DOW. But the DOW Jones stocks are only representative of their respective sectors not of every stock in the sector. If the market (DJIA) is down for a given trading day there are many individual stocks, dozens at minimum, in the broader market that are up for the day. The same is true for sectors that may be down, there can still be stocks within the sector that are up for the day. The key is to find one of these stocks and trade it.

When a stock receives unexpected interest from a lot of investors, whether retail or professional ones, the volume created in trading it can overwhelm a trading platform used to trade the stock's shares. Clearing all the trades (which is a different subject for a different article) can be problematic for a trading company since the amount of floating shares for the volatile stock may be limited. This may cause a problem for a trading company with limited shares to obtain shares for all investors who wish to purchase them.

Stock traders and investors want to be able to readily buy and sell stocks that are making big price moves so that a profit can be captured quickly. If everyone is limiting their attention to trading the same stock then share availability may be impacted and limitations by trading companies will result.

Since the US stock markets are the most liquid in the world there are always opportunities to be made outside of the viral stocks being traded. Profitable intraday trading happened for more stocks than GameStop when it was red hot. The way to combat the limitations were placed on GameStop, and other stocks, with limitations, is to find highly traded and profitable stocks that don't have limitations placed on them. There are respectable stock research sites (like this one) that can help you identify stocks with high interest (measured in volume) along with volatility (measured in price movement). Trading in diversified profitable stocks that don't have limitations (yet) allow for quick profits to be made smoothly. Happy trading!

Category: Trading Opportunities