What are the most volatile stocks? Volatility is a measure of an asset’s historical price scatter. For day traders, volatility means profit potential. But volatility trading can create losses.  Knowing the right strategy is vital to successful volatility trading. 

What Stocks Have the Most Volatility?

The most volatile stocks have a large demand and not enough supply. As a result, the stock rips and dips so much it’s like you’re looking at a yoyo. Stocks like $NIO, $NVDA, and $TSLA are large caps stocks with high volatility. Large caps stocks are safer to trade than penny stocks.

But people love the cheap share prices of pennies. But that volatility can burn you. And being left as the bag holder in a penny stock pump and dump isn’t fun at all. Therefore, if you want the volatility of penny stocks, make sure you’re an excellent trader. Have a plan, stick to it, and go along for the ride.

The Most Volatile Stocks with Price Action

With the most volatile stocks, we’re looking at the price action of an asset to find profit potential.  If we focus on the price, we need a price action strategy to track volatility changes in volatile or nonvolatile investments.  Using indicators and analyzing trending waves to ascertain entry or exit points, and, through experience, gain insight into the sustainability of a movement by observing how far and fast prices move. 

Day Trading Volatility

Stocks with heavy volume and price action are easy to enter and exit and thus popular for day trading. They’re great to consider for the most volatile stocks. Some assets move 5% or more per day consistently, while others will only do so on certain days.  We can seek out one or the other looking for the biggest risers or fallers with a scanner:

If we are watching a volatile stock, we can set a 5-minute chart looking for a trend.  We will use a ten-period moving average to find the trend and look for consolidation (three price bars that move sideways).  The position will be entered if the price breaks out of the consolidation band in the direction of the trend.  This is a simple high volatility method. 

American Airlines moved over 5% a day during the pandemic, with more significant movements on trend days.  We saw some consolidation form with a three-period $12.97 low and 13.03 high, with the price dropping 1 cent below the “low” we sell short with a stop loss 2 cents higher than the trend at $13.05, and a target of twice the risk ($12.96 entry to $13.05 stop loss*2).  The target is $12.775 with 18 cents/share profit.  This strategy is best for volatile stocks because their price movements allow for targets to be reached. 

Trailing Stop Loss Strategy for the Most Volatile Stocks

This strategy is used to gain from more significant developing trends. And a good thing to look at with the most volatile stocks. You will look for a 20 period moving average break out and follow it with an ever-changing stop-loss that is the moving average, closing the position when the price intersects the average again. 

On days where the S&P has higher than average volatility, the stocks that make up the index will too.  When a constituent stock moves outside its support or resistance, it is a new trend indication.  We use the average true range (ATR) to measure volatility.  A sharp ATR increase indicates a substantial price movement with a likely breakout and, therefore, potential trading opportunities. 

We can see several breakouts on the 1-hour gold chart below.  A breakout can be highlighted by combining a 20-period Moving Average with the ATR. 

The point where the ATC exceeds the moving average indicates a potential trade.  A better opportunity is revealed when the price is also be breaking outside the recent swing’s highs or lows, filtering out an ATR crossing that does not involve a significant price movement. 

With the above examples, we show the point of entry, and a stop loss can be placed just below the low if going long ( or high if going short).  The position close is when the price returns to our 20-period moving average; because this is a good indicator of a changing trend and provides a timely exit, closing the position at the red “X” will be the point when the trend has burned out and will likely go in the opposite direction. 

Indicators of Volatility

Besides the ATR, you can look at Historical Volatility; a price action measure looking backward (hence historical), and Implied Volatility; which is forward-looking at volatility anticipation. Implied volatility is derived via the options market, which reacts to potential news and announcements. These happen in the most volatile stocks.

Another volatility indicator is the Relative Volatility Index(RVI) which looks at a price’s direction and volatility.  The red bars (bottom graph) can indicate when an asset is either overbought or oversold. 

While not an indicator to be used alone as the RVI indicator passes above 50, it indicates a buy signal or below 50 a sell signal.  The RVI can be used in conjunction with other indicators to confirm your buy or sell decision. 

Low Volatility Trading

With low volatility, we can increase profits through lots of trades creating liquidity for a stock, buying when the price is lower, and selling with a small profit several times a day.  A penny stock is best for this where, for example, there are buyers at $0.035 and sellers at $0.04.  You can set both a bid at $0.035 and a sell at $0.04, acting as the market maker. 

With both orders filling, you make the difference of about a 14% profit with no price movement, as far as price goes, this may not be volatile, but for each $0.005, on such small numbers, it is a significant percentage jump as long as you have commission-free trades. 

Summary

Volatility trading is undoubtedly exciting as the prices move quickly, but you need to make sure to set stop losses because being volatile, things can change in the blink of an eye.  Adding in leverage makes this even riskier.  Using execution tools and closely monitoring your positions is vital. As always, never put at risk into any investment more than you can afford to lose, and good luck with all of your trades.