It is emotions - fear and greed-that often rule the market more strongly than fundamental news.īut such a bacchanal cannot last long. It is extremely dangerous to enter such a market when emotions are running high. And the more major players panic, the higher the amplitude of fluctuations. Read more: The importance of volumes in the marketĪn increase in the range of price fluctuations indicates that panic is growing in the market. And the price begins to rise sharply, then fall just as sharply. If prices are rising, then the greed of traders is also growing - everyone wants to tear off their piece of the pie, and more. Especially when large players enter the market in large volumes. More and more players open positions, and the movement of the asset price becomes sharper and stronger. But, unfortunately, it is impossible to predict exactly how long the "calm" will last and how long the subsequent movement will be, and most importantly, in which direction. It is at such moments that you can earn the most.Īs a rule, the longer the period of "calm" in the market, the more likely it is that prices will rise or fall more strongly and faster. Market participants "get tired of boredom" during periods of calm and are happy to join the game as soon as there is a reason. The strongest movements in the market occur after a period of very low volatility.
Read more: What is a spread and its types Why is the market volatility changing And those who wanted to ride the wave of volatility profitably did not guess the direction of the upcoming growth of Tesla shares by almost 150% and lost $8.4 billion in just one day on February 4, when Tesla shares updated the historical maximum, the "shortists" lost $2.5 billion. The volatility increased to 45%.Īccustomed to volatility, investors opened short positions at price peaks. And then came a period of greater volatility, when the price spread on average reached $118 - from $261.95 to $379.57. But after this period of calm, the price rose sharply from $291.13 to $370.80. The volatility in this range is less than 8%. The period of take-off was preceded by a period of volatility.ĭuring the period of low volatility, the maximum spread of Tesla stock prices was $23.53 - from $283.37 to $306.9.
And looking at how famously the papers are getting more expensive by $50 per day, you understand what chances you missed by not buying them on time. It's a pleasure to watch the paper take off in recent months! From the beginning of 2020 to mid-February, the shares of Elon Musk's company soared by 119%. The example of Tesla shares is very indicative. But there may be a great danger lurking here. Volatility helps to make forecasts and bets taking into account previous fluctuations in value. For example, if the share price changes within ± 1% during the day, it is unlikely that it will start changing within ± 3% in the next few days. If there is no important news, the asset will move within its average volatility. Knowledge and understanding of volatility is important for identifying the minimum and maximum prices for an asset. And then the volatility of the trader is only to the detriment. If not, then the risks of losses increase dramatically. But you can earn more only if you predict the direction of the market and the price movement of your asset. With large price fluctuations, it increases, and the difference in the purchase and sale price at which you can make a profit increases. On the one hand, high volatility makes it possible to earn more on the market. The volatility is usually calculated as a percentage of the asset price. Volatility is the spread, deviations of the price of an exchange commodity over a period of time (day, month, week, year) from the price level or the main direction of the market. Conversely, when the market calms down, volatility also decreases, since the scope of price fluctuations is minimized. The same is true in the market - the more the asset price jumps up and down, that is, the higher the range of fluctuations in the asset price, the higher its volatility. But if a storm breaks out, the waves can reach a height of several meters. When the sea is calm, there are practically no waves, only small ripples. The comparison with the sea explains the various market conditions very well. Sometimes the prices on the market are quite swinging, and sometimes the market is completely calm. But what is this variability and how important is it when trading? We offer to understand this.
Volatility is a word that can be heard quite often in the news summary about financial markets.
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