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Stock volatility is the relative rate at which the price of a security moves up and down. Volatility is found by calculating the annualized standard deviation of daily change in price. If the price of a stock moves up and down rapidly over short time periods, it has high volatility. If the price almost never changes, it has low volatility.
A variable in option-pricing formulas shows the extent to which the return of the underlying asset will fluctuate between now and the option's expiration. Volatility, as expressed as a percentage coefficient within option-pricing formulas, arises from daily trading activities. How volatility is measured will affect the value of the coefficient used. It is very important to get some idea about share tips so that you can know how and where to invest your money.
About high and low volatility
In other words, volatility of the stock refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. Whereas a lower volatility would mean that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time. One measure of the relative volatility of a particular stock to the market is its beta. A beta approximates the overall volatility of security's returns against the returns of a relevant benchmark (usually the S&P is used). For example, a stock with a beta value of 1.1 has historically moved 110% for every 100% move in the benchmark, based on price level. Conversely, a stock with a beta of .9 has historically moved 90% for every 100% move in the underlying index.
More about volatile markets
During volatile times, many investors get spooked and begin to question their investment strategies. This is especially true for novice investors, who can often be tempted to pull out of the market altogether and wait on the sidelines until it seems safe to dive back in. The thing to realize is that market volatility is inevitable. It's the nature of the markets to move up and down over the short term. Trying to time the market over the short term is extremely difficult. One solution is to maintain a long-term horizon and ignore the short-term fluctuations. For many investors this is a solid strategy, but even long-term investors should know about volatile markets and the steps that can help them weather this volatility. If one does not have enough knowledge of the working of NSE, BSE, NASDAQ…etc, then you cannot be successful in the stock market.
Dealing with volatility
One way to deal with volatility is to avoid it altogether. This means staying invested and not paying attention to the short-term fluctuations. One common misconception about a buy-and-hold strategy is that holding a stock for 20 years is what will make you money. If you find a company with a strong balance sheet and consistent earnings, the short-term fluctuations won't affect the long-term value of the company. In fact, periods of volatility could be a great time to buy if you believe a company is good for the long-term.
Things to Keep in Mind
The type of order you choose is very important when the markets aren't moving in their normal fashion. A market order will always be executed, but in fast markets you might be surprised at what price you get, which can be substantially different from the price that was quoted. You should be able to read the sensex.
In a volatile market, the limit order - an order placed with a brokerage to buy or sell at a predetermined amount of shares, and at or better than a specified price - is your friend. Investors need to be aware of the potential risks during times of stock volatility. Choosing to stay invested can be a great option if you're confident in your strategy. If, however, you do decide to trade during volatility, be aware of how the market conditions will affect your trade. So making a study of the volatility carries a great importance in gaining in stock market.
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