For anyone that is new to stock trading or the stock market in general, a volatile market is an important concept to be familiar with. In a nutshell, a volatile market is one where prices and trade volume can move quickly, dramatically, and unpredictably. Traders operating within a volatile market can incur tremendous gains or losses, depending on the particular stock they are investing in.
Trade Volume Skyrockets
One way to identify a volatile stock market is by observing the volume of stocks or shares that are moving at any given time. If hundreds of thousands of shares are being traded within an hour, then that particular stock is volatile. If this trend is observable across the greater market, then that is a telltale sign of a volatile stock market.
Prices Swing Widely
Any time that prices on a wide number of staple industry stocks begin to go up or down widely, then this indicates with near certainty that the greater market is extremely volatile. Volatile market conditions are usually defined by wild price swings across a commonly traded group of stocks or a stock index.
During an extremely volatile market, it is not uncommon for stock quotes to be incorrect. The reason for these incorrect quotes is that the stock prices are changing so rapidly that every second that passes sees a dramatically different price. The trading platforms are able to process up to the second data; however, during volatile market conditions stock prices might swing too wildly for price quote systems to keep up with. This is another volatile market red flag.
Another underpinning characteristic of a volatile stock market is one where risk is far higher than usual. Due to the unpredictability of a volatile market, it can be nearly impossible to trade on a single trajectory trading plan. Seasoned and experienced stock traders typically cease all of their market activity during high volatility in order to mitigate unnecessary risk.
A lot of day traders and other short term stock traders prefer a volatile stock market because increased trade volume and price fluctuations present a much higher reward trading environment. While a volatile market carries with it much higher risk, huge sums can be earned on solitary stocks just through simple arbitrage-based trading techniques.
About Raging Bull Trading
Raging Bull Trading is a trading program that teaches both new and experienced traders about the art of trading and the stock market. Originally launched in 2010 by professional traders Jeff Bishop and Jason Bond, Raging Bull Trading offers a comprehensive course on mastering stock trading from industry experts. The program includes lessons on stock picks, stock ideas, how to get started in trading, and an overall stock market education.