VOLATILITY ANALYSIS – Evaluating Stocks To Trade In The System

The Volatility page is the first step in researching stocks that have the potential to be traded in Tactical Trading. Access this page at Research>Volatility. Here is what you wil find:

• Symbol Entry:
  There are three ways to enter symbols for review. The basic single symbol input, multiple symbol input and if you have any active cycles you can select a symbol from the Active Symbols dropdown.
  
  
• Statistics Block:
  A table showing Last Price, Average Volume, 12 month high, 12 month low, Exchange Traded, Sector, Beta, PE Ratio, Price to Sales ratio and Dividend Yield.
  
  
• Volatility Table:
  This table shows the percent volatility for multiple time frames allowing for quick review of volatility consistency across timeframes. In addition are percent daily volatility for the past year, the Daily Move, and the Daily move as a percent of last price.
  
  
• Main Price Chart:
  This is a candle chart of daily OHLCV for the past 12 months. It is overlayed with a 50 period and 200 period simple moving average.
  
  Below the price chart are line charts of the historical volatility for 10, 20 and 90 day rolling periods. This makes it simple to compare historical volatility to stock price.
  
  
• Company Description:
  A brief explanation of the company’s business.
  
  Also in this block is whether or not the stock is Easy To Borrow. If YES then shorting the stock is made easier. If you are interested in going short you want this to be YES.
  
  
• Reward vs Risk (RVR) Chart:
  The RVR is a measure of Alpha divide by Standard Deviation. Alpha being price performance relative to the market, and standard deviation representing volatility. A high positive RVR is desired, negative RVR should be avoided unless in recovery per the chart.
  
  
• Trading Range Lines Chart:
  Otherwise known as the Five Lines Chart. It is a candle chart of the last two months OHLC overlayed by five parallel linear regression lines. The center line is the linear regression of price over the trailing two months. Using the Daily Move for spacing, two lines are added above, and two lines are added below the linear regression line. The slope of the five lines shows whether the price trend is up, down, or sideways. The five lines also act as a price envelope showing how much of the price action the current Daily Move represents.
  
  
• Spikes Chart:
  The Spikes chart shows the standard deviation of daily returns over the trailing 12 months. A chart with many large up or down spikes indicates a highly volatile stock. Up spikes are less worrisome because they represent large positive daily return. Down spikes are negative returns, therefore many large downward spikes should be viewed as a caution signal. Too many large downward standard deviations can cause unusually frequent filled buy orders, often at a gap down price (the opposite is true if shorting the stock). Ideally you want a stock with limited spikes, up or down, exceeding 2 standard deviations.
  
  
• Log Scatter Chart:
  The Log Scatter chart visualizes daily percent return vs the standard deviation of the return. Ideally you want a stock that has few outliers and plots are generally clustered near the vertical center line and toward the bottom of the chart. A stock with many outliers may be very risky to trade as these show frequent volatility extremes.
  
  
• Watch List:
  The Watch List is intended to hold stock symbols you are keeping an eye on for future trading opportunity. It is available on the Volatility page to make it easy to research them.
  
  You will find deeper explanations of these features in their individual tutorials. Once you have a clear understanding of the Volatility page it will be easy to identify trading candidates and take them to the next step in the research process, Simulation.