Volatility

AHH! Volatility, the markets are volatile! better dump your stocks!
WRONG!!!

Volatile markets should get you excited! They get me excited.... ;) do you know why? 

Volatile stocks move quickly, in both directions. I once read an article about stock trading that suggested you should never trade a stock that moves sideways as I have drawn below. They called it a mountain range type chart.

     And every one who says not to trade a chart like this says its unpredictable. And well if you're a long term fundamental trader, this is a horrible stock. But if you're a short - intermediate term trader who uses technical analysis, these stocks can't be better.
     Now you ask, "How do we make money on a stock going up and down in a sideways action?? The stock isn't rising in price to much and its just an all over crazy chart!! You cant predict that!!!" You're right and wrong,  your right that the price isn't rising and the chart is kinda crazy. But it is very predictable. 

     I'm going to show a stock that tends to be very volatile, Google's stock. Ill show you how you can use history to setup support and resistance levels. Then use those along with any other technical indicator to make easy trade set ups. 

    Below is Google, from November 05 through January 09. I manually set up support and resistance levels by connecting areas that have highs and/or lows. Click to enlarge image.


Now I will show you January 09 through September 12. Click to Enlarge Image

    Notice how this, sideways moving mountain range stock moved within the support and resistance levels that were determined with data 6 years previously. If you followed the rules and bought when near those support levels and sold near the resistance levels you would have made plenty of money. Now if you one of those people who like to be extra sure, tie a technical indicator in there. I used one of my favorites, Money Flow Index (Which works very well with sideways moving stocks). Both times that the indicator gave an oversold signal, the stock was also near a support level, this is a very powerful trade set up that you are free to use.
    Now you have learned that you can make lots of money from sideways moving stocks because they are predictable. Sideways moving stocks, such as the one in our example, tend to move within certain boundaries. Many other traders and now you, recognize these boundaries and use them to predict future moves.






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