If the price moves a lot in a day, especially with lots of volume, this means that a trader can enter and exit the position easily. This is one reason why volatile stocks are so popular for day trading, in particular.

Volatility breakout trading strategy

A volatile stock is one whose price fluctuates by a large percentage each day. Some stocks consistently move more than 5% per day, which is the expected volatility based on the historical movement of the stock. Other stocks may only have certain days where they move more than 5%.  You can identify the biggest risers and fallers within the share market of each trading day in the Product Library inside our trading platform, Next Generation.

For example, when day trading volatile stocks, you can set up a five-minute chart and wait for a short-term trend to develop. For day trading, a 10-period moving average will often highlight the current trend. You should then wait for a consolidation, which is at least three price bars that move mostly sideways, and enter the position if the price breaks out of the consolidation in the trending direction. This is a relatively simple and effective way to trade high volatility stocks.