All language subtitles for 1. Introducing Not So Scary Volatility And How Does It Arise

In this section, we're going to talk about volatility and how to measure it now, at first blush,

you might be thinking of volatility.

That's bad, right?

Bad, bad, not good.

And actually, for traders, the volatility can be actually very good, really helps separates you from

the crowd as far as using indicators and different things.

And for some traders, they seek out volatility.

They seek out securities that are very volatile and things like technology stocks or cryptocurrency

or whatever.

So if you like volatility or you'll like this lessens and if you don't like volatility, you're going

to actually understand a lot better and understand how you can use it to your advantage and make it

a little more comfortable with it.

So what is volatility, first off?

Well, it's simply a measure of price variation.

Your highs and lows.

Prices are going up and down all day long.

And all volatility does is measure how much that's happening and how fast that might be happening.

So the high and low over a period of time or the variation from a fixed measure gives you a feel for

volatility.

So this is my fixed measure and I have a security that just trades it a little bit above and below that

fixed measure, less, more, less volatile, lower volatility, higher volatility would mean that I

have this fixed measure and we are going to learn about these indicators that we'll use in the fixed

measures that they use would have much bigger swings, so much bigger swings in price up and down and

higher volatility.

Basically, that means that there's there's really higher risk, but also higher reward to higher risk

that maybe you didn't make the right choice or didn't turn out the way you thought it would.

And you have a closing, a losing trade, but higher reward to where there's might be more potential

within those trades as far as more price variation, bigger, bigger opportunities for profit in more

volatile stocks.

And so that's why some securities, that's why some traders really like more volatile securities.

They want that potential for more reward.

There's more possible outcomes in a more volatile security than one that's less volatile.

So there's no right or wrong as far as volatility.

It just kind of is.

And how you approach it might be the difference in how you apply the indicators is what will be a difference

between different traders.

And so a change volatility really is implying a change in the expected price range to come.

You know, what's that price range going to look like coming forward?

Very important for us to know.

So so that's a good thing that we want to find that out and volatility indicators help us with it.

So nonvolatile security delivers a narrower range of possible outcomes than one that's a more volatile

security.

Right.

Makes sense.

Right.

And that's again, a typical typical technology stock or bitcoin or cryptocurrency is generally more

volatile than something that's, you know, like a utility stock that has very little variations in

price.

So the main reason to look at volatility is to reflect the changing probability of a gain or loss.

What is the what is the possible outcomes that I if I make a trade that I'm going to have a gain?

And what is the chances I may have a loss?

And I can I, you know, look at volatility in a way to kind of make this work in my favor.

And the good news is you can and that's what we're going to learn about in these upcoming lessons.

So let's think about for one second here, though, is how does it arise?

Where does volatility come from?

And you can really think of volatility as crowd sentiment.

Right.

So, you know, what is the crowd think?

What is the other traders think?

So volatility rises when traders get excited about a new move.

Maybe it's a new event.

It caused a new move.

There's something in the news that is causing something to happen in the price starts going up to new

highs or possibly depending if it's bad news, might be going to new new lows.

Either way, traders are taking notice and they might be excited, maybe disappointed.

But either way, the crowd is getting involved and they're noticing.

And so what's causing this volatility, this price range, this wider price range?

So the start of a new move is when you see higher price highs and lower lows.

Right.

So you've got volatility when a trend starts to establish you're going to look at for higher highs and

lower lows, whether it's an uptrend or a downtrend.

And so volatility can really kind of give us an indication on when that move might be happening.

So volatility and this is the key part, volatility tends to be abnormally low just before a turning

point and abnormally high at the first big thrust of a new trend.

You know, it's always nothing is not present perfect.

There's always noise and, you know, false signals and things in the market.

But if you think about it, if we're looking at volatility measures and the volume is low, are assuming

the volatility is low, just it might be that there's a turning point coming.

So we're looking at a turning point.

And if it's abnormally high, that means, OK, people got excited.

Now, the new trend is not it's not a turning point now.

Now the trend is getting more firmly established.

The first big thrust of a new trend happening.

And that's where volatility can you know, we can see these volatility measures indicating that.

So if you think about it, where it's helping, volatility is helping us to identify turning points.

And establishing strong trends to really important things, I think we'd want to know, right.

So the volatility measures can be very, very helpful in a lot of ways.

Also, when you think of volatility.

Think about your trading style.

And you don't have to decide that now.

You're trading style will develop.

As you start doing trades, you do paper trading in practice, you'll kind of develop into that.

But if you have a feel for what you're trading style might be, that may be how you might use volatility

measures to slow trading style matters with volatility.

In terms of how you look at it, how do you look at risk and reward?

Are you willing to take on more risk for more reward?

Thus you want more volatility, for example?

Also the timeframe, you know, a longer time frames will tend to smooth out volatility.

Right.

You have more time to kind of base these measures on versus, let's say, a very short timeframe and

then the focus of your investments.

As we mentioned, you know, certain things like technology, cryptocurrency, stocks attract people

who are comfortable with and like volatility.

So it doesn't mean you can't trade in those areas.

Not at all.

But just understand, you're going to be in a more volatile area than, let's say, in other areas.

And there's trading mechanics we can actually use to help us with volatility, too, so we can put in

like a market order, not a marketer, but an order like what's called a stop loss order or stop loss

level setting so we can kind of reduce our losses.

So if you're like, I want that reward, but I'd like to reduce my risk a little bit, you can actually

use some trading mechanics.

So we'll learn a bit later in the course on how to do that to, you know, put in the correct order

to help reduce that downside risk and still give you a good chance of upside rewards.

So that gets the trading mechanics part coming up later in the course.

All right.

So let's learn even more about volatility and start talking about what types are degrees of volatility

you might be experiencing out here.

And some indicators that we can use that are specific to volatility, which is really looking at market

sentiment and looking for those turnaround opportunities and those opportunities that, oh, a trend

is established.

And we see that first thrust because we see an increase in volatility and volatility do good thing.