Trading Volatile Stocks

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TradingTrading
Volatile StocksVolatile Stocks

Trading volatile stocks can be veryTrading volatile stocks can be very
profitable.profitable.

Trading volatile stocks can also beTrading volatile stocks can also be
treacherous to those not skilled in the usetreacherous to those not skilled in the use
of technical analysis of stock prices.of technical analysis of stock prices.

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Trading volatile stocks is the province ofTrading volatile stocks is the province of
technical traders and is best engaged intechnical traders and is best engaged in
by those skilled in the use of Candlestickby those skilled in the use of Candlestick
analysis.analysis.

The price of a stock is volatile whenThe price of a stock is volatile when
fundamental analysis is uncertain andfundamental analysis is uncertain and
traders are all over the board with theirtraders are all over the board with their
opinions as to where the price will go next.opinions as to where the price will go next.

It is in these situations that Candlestick chartIt is in these situations that Candlestick chart
analysis excels in predicting stock priceanalysis excels in predicting stock price
movement.movement.

This works because, even when tradingThis works because, even when trading
volatile stocks, stock price patterns repeatvolatile stocks, stock price patterns repeat
themselves.themselves.

Using technical analysis tools likeUsing technical analysis tools like
Candlestick pattern formations allows theCandlestick pattern formations allows the
trader to benefit from the learned lessonstrader to benefit from the learned lessons
of history.of history.

Using Candlestick trading tactics when theUsing Candlestick trading tactics when the
market is volatile can allow traders to profitmarket is volatile can allow traders to profit
from uncertainty of others.from uncertainty of others.

allows traders to benefit from anticipatingallows traders to benefit from anticipating
the results of when other traders fall preythe results of when other traders fall prey
to the trading psychology of fear andto the trading psychology of fear and
greed that can fell an otherwise skillfulgreed that can fell an otherwise skillful
trader.trader.

The point of trading volatile stocks is thatThe point of trading volatile stocks is that
there is potential profit in the large risesthere is potential profit in the large rises
and falls in stock price during chaoticand falls in stock price during chaotic
trading.trading.

A useful adjunct to reading marketA useful adjunct to reading market
movement with Candlestick patterns is tomovement with Candlestick patterns is to
engage in options trading while the marketengage in options trading while the market
is volatile.is volatile.

When buying calls or buying puts on a stockWhen buying calls or buying puts on a stock
the trader limits his investment risk to thethe trader limits his investment risk to the
premiums paid for each call or put.premiums paid for each call or put.

He, nevertheless, can profit greatly when aHe, nevertheless, can profit greatly when a
stock price moves in the direction that hisstock price moves in the direction that his
Candlestick chart formations imply that itCandlestick chart formations imply that it
will.will.

In the case of a call option the trader paysIn the case of a call option the trader pays
for the right to buy 100 shares of stock perfor the right to buy 100 shares of stock per
options contract.options contract.

He will do so if the price of the stock movesHe will do so if the price of the stock moves
significantly above the strike price of thesignificantly above the strike price of the
options contract.options contract.

As he is under no obligation to buy theAs he is under no obligation to buy the
stock he will only lose the price paid forstock he will only lose the price paid for
the contract if the stock price goes down.the contract if the stock price goes down.

When the trader buys a put on a stock heWhen the trader buys a put on a stock he
pays for the right to sell 100 shares of thepays for the right to sell 100 shares of the
stock, which he will do if it goes down instock, which he will do if it goes down in
price.price.

As with a call option he is under noAs with a call option he is under no
obligation to exercise the contract and willobligation to exercise the contract and will
only lose the price of the premium if hisonly lose the price of the premium if his
analysis of the stock price turns out to beanalysis of the stock price turns out to be
incorrect.incorrect.

In trading volatile stocks a useful tradingIn trading volatile stocks a useful trading
strategy is to buy both a call and a put onstrategy is to buy both a call and a put on
the same stock with the same expirationthe same stock with the same expiration
date.date.

The trader can profit from either directionThe trader can profit from either direction
that the stock price moves.that the stock price moves.

Using this strategy, known as a longUsing this strategy, known as a long
straddle, his only loss will occur if marketstraddle, his only loss will occur if market
volatility suddenly disappears and thevolatility suddenly disappears and the
stock price does not change significantlystock price does not change significantly
enough to cover the premiums paid.enough to cover the premiums paid.

Using options helps limit risk in trading aUsing options helps limit risk in trading a
volatile market.volatile market.

So does the skillful use of CandlestickSo does the skillful use of Candlestick
signals.signals.

It is the market inefficiency of a volatileIt is the market inefficiency of a volatile
market that leads to trading profits for themarket that leads to trading profits for the
astute Candlestick trader usingastute Candlestick trader using
Candlestick basics to read stock priceCandlestick basics to read stock price
patterns.patterns.

In a fast paced market with theIn a fast paced market with the
fundamentals changing and uncertain,fundamentals changing and uncertain,
there are periods of delay when thethere are periods of delay when the
market catches up and gains consensus.market catches up and gains consensus.

During these times the market may goDuring these times the market may go
through a large number of readable pricethrough a large number of readable price
patterns, all of them profitable to trade ifpatterns, all of them profitable to trade if
the trader uses the skill set learned fromthe trader uses the skill set learned from
studying Candlestick chart patterns.studying Candlestick chart patterns.

There are often more, and better, tradingThere are often more, and better, trading
opportunities in a short span of a volatileopportunities in a short span of a volatile
market than in days, weeks, and evenmarket than in days, weeks, and even
months of a quiet market.months of a quiet market.

Although someone accustomed to long termAlthough someone accustomed to long term
investing may stay at home during suchinvesting may stay at home during such
an active market, the savvy Candlestickan active market, the savvy Candlestick
trader will engage the market and profit.trader will engage the market and profit.

Trading Volatile Stocks

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Trading Volatile Stocks