How to scan for low volatility stocks

jacknapier

Active member
157 2
My stock watch list is too small and I have trouble scanning for low volatility stocks. Basically, I want to expand my watch list. Analyzing my losers shows that trading high volatility stocks almost guarantees it will be a losing trade. Beta and ATR are the only variables that I know of that measure it.

I'm wondering if anyone has any suggestions on how to find low volatility stocks?
 

Trader333

Moderator
8,601 931
Analyzing my losers shows that trading high volatility stocks almost guarantees it will be a losing trade

Can you explain why ? If you adjust position size to take account of the volatility then the risk should be the same for high or low volatility.
 

Lee Shepherd

Senior member
2,164 571
My stock watch list is too small and I have trouble scanning for low volatility stocks. Basically, I want to expand my watch list. Analyzing my losers shows that trading high volatility stocks almost guarantees it will be a losing trade. Beta and ATR are the only variables that I know of that measure it.

I'm wondering if anyone has any suggestions on how to find low volatility stocks?

Hi Jack and Happy New Year to you.

I have good background in equities and traded them from 1994/5 through to 2004/5 ish. I rarely trade equities these days unless something really looks attractive and jumps at me. Generally in equities its about the fundamentals more than the technicals but of course this depends purely on your time frame, shorter the time frame will be technical, longer will be fundamental (generally). Again depending on how much spread/comms you pay and how much time you have to monitor will determine whether day trading or long term investing is for you.

The greatest thing ever about trading is this:

Should you have found a system or strategy that constantly loses then turn it on its head and it works (taking out commissions/spreads etc). Remember its a two horse race, up or down, red or black, true or false. I take this as you state that your system "almost guarantees you a losing trade" - this is brilliant providing what you say is true - to be honest and this will hurt - in most cases this is not true and the real system is affected directly by the person pushing the button and is not consistent or true to the strat/system.

Again finding low volatility stocks is the opposite to how you find high ones. Trading really is not that difficult in reality, its only us that make it difficult by adding or/and changing variables. ie, not trading the plan.

The main reasons (the only true one I believe) why turning the system on its head to find it doesn't work is because its not calculated enough or had adequate forward/backtesting done and is left purely to chance of the randomness of the markets/traders sentiment etc.

It is true that if you find a system that constantly and reliably loses you money above the spread and commissions then by turning it upside down will become a winning system.

My point to this is this:

Provide more information about what you are currently doing and good traders will be able to point you in the right direction, hell knows you may even work it out for yourself by simply writing it down. Analyzing your trades at every point is crucial. Therefore if this has already been done it should be a simple exercise of copying and pasting your details on here.

Happy trading,

Lee Shepherd
 

jacknapier

Active member
157 2
It is true that if you find a system that constantly and reliably loses you money above the spread and commissions then by turning it upside down will become a winning system.

That's exactly what I was thinking looking at them. Most of them were paper trades (Thank God), but it definitely made me rethink my system. Basically, an MFI divergence, but now it seems that signal is a good indication of a trend, rather than a reversal/trend exhaustion. I just wish I had a way of mechanically testing it.

I suppose I could change my position size, but given that it's not very big to begin with and most of these trades were paper trades, I'm not sure that's going to help.
 

Rhody Trader

Senior member
2,620 265
An alternative filter for low volatility stocks is the width of the Bollinger Bands. Like any other measure, though, it looks backward. The future won't necessarily replicate the past, so you have to consider whether your system's problem is with already high volatility stocks or potentially with those which previously were low volatility ones that got more animated.
 
 
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