If Hollywood ever made a movie about my stock broker career, I would call it: “Dr. Rangelove, or: How I Learned to Stop Worrying and Love the Volatility”. Many of my trading clients dislike the word volatility, thinking it’s a negative aspect of the stock market. My goal is to help investors embrace volatility, master it and use it to improve their trading.

In common parlance, volatility has become almost a “dirty” word. “That person is very volatile”, they say, imlying explosiveness, danger or fear. In the context of the financial markets, however, the word “volatility” doesn’t have the same negative connotations. It simply means that the share price tends to move sharply.

Volatility has no direction. Shares may be volatile and rally hard, gaining 5-10% in a single trading session. Which is great news for market Bulls. On the other hand, they could fall the same amount. Which can be also great, as long as you sold the stock short.

Up or down, what matters most is the quick, explosive rate of change. For a prepared trader, it could mean equally quick gains, as long as they were on the right side of the trade. It’s equally important to plan for things to go wrong and prudently manage risk with stop-loss and take-profit orders (go ahead and read Mike’s column for more on that).

Less volatile stocks may deliver the same 5%, 10% or 15% rallies, of course. But it takes longer and ties up capital, which means less trading efficiency. Longer wait times can also mean changes in the wider financial environment and a shift in the trend. Some trends last weeks and months and you can calmly “ride” them to your preferred target. Other trends dissipate quickly, sometimes within days or even hours. Which means that the more volatile stocks can often squeeze a bigger benefit out of the same trend.

There are, of course, circumstances when stock volatility can be detrimental. Let’s say you picked a great stock and identified a trend, upwards or downwards. You make the appropriate trade and hold the stock over the long-term. The trend, as they say, is your friend. In this case, volatility can be undesirable. You don’t want sudden changes to sharply move the stock up or down, triggering your stop-loss.

But how common are these docile, predictable trends that just keep going forever and ever? If you are an index trader, think back to all the wild gyrations the UK Index had last year. A -12% drop in the beginning of the year, then a +15% rally to May’s record highs, followed by a series of further corrections (-16% in total) at the end of the year. No real long-term trend that you can autopilot.

But what if you stopped thinking in terms of weeks and months and embraced the short-term trends? Every week on the UK Index , we have dozens of events that can generate short-term big share price reactions: corporate results, macroeconomic data, geopolitical news can all play a role. Significant events leading to impactful share price rallies and corrections.

Some may find this kind of day trading overwhelming. Yes, they say, the payoff of bigger volatility can be attractive. But to properly pilot the short-term trends, there is a lot of details to keep in mind. And not everyone has these kinds of resources, especially if trading is your secondary activity, you have a time-consuming main job or if you simply trade casually.

Enter the Accendo Markets and its friendly neighbourhood trading floor. If you sign up to our Gold Pass, we can keep an eye on the most exciting and volatile stocks on the UK Index on your behalf. Not only that, but we will also send you daily trading opportunities that fit your personal preference to add an extra string to your trading bow.

Avin Nirula, Trader, 25 January 2019