Volatility is a measure of the changes in the price of a stock over time. It is typically a measure of the price changes over the last 15 to 20 days. These changes may be large or small. Now that we know “what it is”, why is it important?
It’s very important if You’re a Trend Follower. As a Trend Follower one of your key objectives is to set an appropriate Stop Loss Price after you’ve purchased a stock in order to lock in gains and reduce risk.
Of course, the next question is: What’s an “appropriate” Stop Loss Price? To determine an appropriate Stop Loss Price, one of the key elements in reaching that decision is the recent price volatility of the stock.
There are several options available to help an investor determine an appropriate Stop Loss Price. Investopedia is a good place to start, but there are others.
We calculate a suggested Stop Loss (% and dollar) for each stock and it appears in every Today’s Report on each individual trending stock. You can use it or substitute your own.
Regardless of the method you choose, you always want to use a Stop Loss. But remember, setting it too far away from the market price may result in bigger losses or holding on to a poorly performing stock longer than you should. And setting your Stop Loss too close to market price may result in getting out of a potentially good position too early, and with perhaps a loss.
We believe that Volatility and Volume are 2 major factors in determining if a stock is a good candidate for purchase. We specifically highlight them in Today’s Report on each Trending stock to give the DIY investor the insights they need to make informed investment decisions.
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And remember to always Ride Your Winners and Cut Your Losses.