As a trader, the best opportunities come from stocks that move violently in a short space of time. Getting on the right side of these trades can lead to explosive gains in your P&L, which is why traders live and breath off of volatility. Therefore, it’s essential to know what drives volatility in stocks, and most importantly, how to find the most volatile stocks.
Luckily, that’s just what I’m about to show you…
What are Volatile Stocks?
Volatility is a measure of dispersion above all else. As such, it tells us about the speed and magnitude of changes in underlying data.
In the context of stocks, then, volatile stocks are those that see large swings in their share price. While this comes with greater risk, it also presents traders with attractive trading opportunities.
Ultimately, the more volatile a stock is, the more it moves. And the more it moves, the more money you can potentially make. It’s these promises of high rewards that generate so much enthusiasm in volatile stocks.
Unfortunately, there isn’t an exact definition for what classifies as a volatile stock, as this is ultimately a matter of opinion. However, in general, most would consider stocks that move more than 2% a day on average as volatile stocks.
How to Find the Most Volatile Stocks with a Stock Screener
Stock screeners are the best tools for pinpointing stocks with desirable attributes. All you need to do is define some parameters that capture those attributes.
So, what are these parameters for volatile stocks?
To a certain degree, this will depend on your personal trading style. Everyone has different risk tolerances, so what some consider as volatile, others might not even get out of bed for.
However, since I assume that most traders looking for volatility are short-term, active traders, I will lay out a basic framework for this style.
Namely, day trading.
Later, I will cover some alternative ways to find volatile stocks for different investment styles.
How to Find Volatile Stocks for Day Trading
The aim of day trading is to get in and out of trades on the same day. For this to be worth our while, we need to trade stocks that can move significantly in a short space of time.
Below, I outline the key parameters to help find these types of stocks:
- Pre-Market “Gappers”: Stocks gapping up or down in the pre-market reveal where the volatility is before the day has even started. This volatility usually continues throughout the day, providing us with plenty of trading opportunities. Read my review on the best premarket scanners to see several examples of these.
- Low Float: Low float stocks have the ability to rip when abnormally high demand outstrips their limited share supply. They also tend to make good short squeeze stocks.
- High Relative Volume: Stocks trading with above average volume indicate where the action is. With a higher number of buyers and sellers than normal, expect the share price to move more than normal too.
- Low Market Cap: Small cap stocks tend to be much more volatile than large cap stocks. Therefore, narrowing our focus to these companies works as a good volatility screen.
- News Catalyst: High volatility is usually accompanied by a news catalyst, such as earnings releases, partnership agreements, big orders, or M&A rumours.
Finding Volatile Stocks
I’m going to show you how to build a scan around this criteria with Trade Ideas. In doing so, you’ll see how it led me to a volatile stock that I managed to profit from.
While you can achieve the same thing with other stock screeners, like Finviz, Trade Ideas is my favourite for finding high volatility stocks.
First, let’s outline the rules for this scan:
- Gap > 2% (Volatility)
- Float < 50 million shares (Low Float)
- $0.5 < Price < $10 (Small Cap)
- Volume > 200,000 shares (Liquidity)
To enter this into Trade Ideas, you simply click “New” –> “Top List Window” and then enter the following filters into the pop-up window.
You’ll also want to display the following columns next to your scan results. This lets you eye-ball the key metrics for volatile stocks.
Once you click “OK”, a new window will appear like the one below. This “Top List” – which I’ve called “Small Cap Up Gappers” – displays all the stocks that meet my filters, as well as the data columns I chose.
Now, I know all of the stocks in this list have the potential to move. But, how do I know the ones that actually will in real-time?
This is where Trade Ideas’ “Stock Racing” feature comes in handy. If you want to get a full run-down of Stock Racing, then read my Trade Ideas review.
Put simply, Stock Racing allows you to visualize where the real-time activity in your scan results lie. Hence, its ability to detect volatile stocks throughout the day.
How to Day Trade the Most Volatile Stocks
The middle window at the bottom of the next screenshot shows you what Stock Racing looks like in action. Essentially, it gives you a live picture of the stocks gaining most over a certain time period (a race). Therefore, the more “races” a stock wins, the more volatile it’s likely to be.
All of today’s race results stack up at the finish line, so you can see which stocks have won multiple times. These repeat winners are likely to be the most volatile stocks.
As you can see, Aravive (ARAV) was one of these stocks.
Looking back at the Top List window, you can see that ARAV had a ridiculously low float of 114,000 shares, an enormous relative volume of 50, and volume that exceeded its float by more than 6x! In other words, all of the pre-conditions for a volatile stock.
Not only that, but its chart looked attractive too. As you can see in the daily chart above (right chart), it was breaking out of a bullish head & shoulders pattern, which you can read more about in this article on how to identify breakout stocks.
I tend not to chase these breakouts straight away, and instead wait for a pullback before buying. As you can see on the 5-minute chart (left chart), this is exactly what I did around $1.21.
To set an exit target for this trade, I found a previous point of resistance on the daily chart, which is where the red line is drawn. As you can see, I sold it a bit early but it was close enough. The exit price of $1.46 gave me a 20% profit in just over an hour!
Hopefully now you can see why volatile stocks are so popular with day traders, and why a stock screener like Trade Ideas is an essential part of their toolkit.
Other Ways to Find High Volatility Stocks
The above example showed 1 way of finding volatile stocks with a stock screener. However, depending on your trading strategy, there may be other ways that better suit your style.
For example, what I just showed you is more suited for day traders looking to capitalise on intraday volatility.
However, this is no use for longer-term investors. Swing traders, for example, look to trade volatile stocks over a longer time frame than 1 day.
This requires a different set of metrics and screening techniques.
I will show you how to screen across some of these alternative volatility metrics below.
Biggest Gainers/Losers
One of the easiest ways to sniff out volatile stocks is to look for the biggest gainers or losers over a certain time period.
The theory being that stocks with high volatility recently, will continue to do so in the future.
Most stock screeners let you to do this with ease. For example, the “Easy Scanner” in Scanz lets you rank stocks from biggest % change to lowest (or vice versa), whilst including other volatility criteria such as float, volume, and market cap.
Likewise, Trade Ideas has a dedicated “Channel” for the biggest gainers over the last day or week called “Explosive Winners”.
It also has a similar “Channel” designed for penny stocks. Here you can see all of the penny stocks making big moves over the last day or week.
Simply flick through some stocks until you find an interesting chart or news catalyst. Then, check the metrics as we did earlier to see if this stock has the potential to move.
Read my Trade Ideas vs Scanz comparison to see how these platforms stack up against each other.
Taysha Gene Therapies (TSHA)
For example, Taysha Gene Therapies (TSHA) caught my eye because it had a huge gain the day before, but failed to hold onto those gains overnight. This suggested that a bearish reversal might occur.
In addition, it had a high relative volume of 13.61, suggesting a much higher than average volume. As mentioned earlier, this metric is useful for finding volatile stocks.
The gap below the current share price also informed my bearish view, since stocks have a tendency to “back and fill” any gaps in a chart.
The weak open that day added to my bearish conviction, and so I entered a short position at $2.39.
I set a price alert around $2, since this was a significant support level. I wanted to see how it traded around there. Was it going to find support and rebound, or break through and continue its bearish trajectory?
(Note, the blue arrow in the chart comes from Trade Ideas’ AI bot. It has nothing to do with my trading)
As you can see, it broke through the support the following day, and I bought back the shares at $1.70 (see below).
From my initial sell price of $2.39, this equated to a 29% profit in less than 24 hours!
Historically Volatile Stocks
Historical volatility concerns how volatile a stock has been over a previous time frame. The theory being that stocks that have been volatile previously, will continue to be so.
I will cover some of the most common historical volatility indicators below.
Standard Deviation
Standard deviation is the most common way to calculate historical volatility. It’s a statistical measure that calculates the magnitude of deviations around an average.
Essentially, any stock with a standard deviation above 2 is a volatile stock. Below, I will show you how to screen for high standard deviation stocks in MetaStock.
First, we need to create the screen.
To do this, click “New Exploration” in the “Explore” tab of the Power Console. Then input the following formula into column A.
This is the annualized, 10-period standard deviation of returns. If you want to use a different lookback period, change 10 for any number you like.
Then, input this formula into the “Filter” tab. This ensures that our screen only finds stocks with a standard deviation greater than 2.
Now, you will see your custom screen in the “All Explorations” list.
Tick the adjacent box, select the stocks you want to screen over, the periodicity for the screen (daily, weekly, monthly, etc.), and then press “Start Exploration” in the bottom right-hand corner.
When the screen is complete, you will see a list of stocks with standard deviations above 2.
As you can see, this identifies stocks that have been incredibly volatile recently. The red line in the bottom panel is the rolling standard deviation.
Trading Range
Another way to measure volatility is to look at a stock’s historical trading range. The wider this range is, the more volatile a stock is.
Trade Ideas lets you screen the past 5, 10, or 20-day ranges, on either a dollar or percentage basis.
For example, I could set up a “Top List” with a minimum 20-day range filter of 20%. This would then only show me stocks that fluctuated at least 20% in the last 20 days.
Beta
Beta is another statistical measure of stock volatility, but only as it relates to changes in the underlying market.
For example, a stock with a beta of 1 generally moves in line with the market, whereas a stock with a higher beta swings around more than the market.
Therefore, to find volatile stocks, traders should focus their attention on those with historically high betas.
You can do this easily with the free Yahoo Finance stock screener. Simply search for stocks with a beta greater than 2, for example.
Earnings
Earnings releases tend to coincide with share price volatility, particularly when a company over or underperforms relative to expectations.
As such, finding out when companies release earnings is a good way to anticipate volatility. In trading lingo, these stocks are called “earnings plays”.
Most stock screeners and brokers include earnings calendars in their platforms, which makes it easy to spot these earnings plays.
For example, Scanz has a “News Scanner” which lets you set alerts for any earnings releases.
Failing this, you can always just look at stock exchange websites or use free services like Yahoo Finance.
Implied Volatility
Implied volatility is a market-based measure of future volatility expectations. In other words, it tells us how volatile the market expects a stock to be in the future.
These expectations are baked into options prices, so all you need to do is plug them into a valuation model like the Black-Scholes model, and back out the implied volatility.
If your broker facilitates options trading, this is done for you automatically and displayed in an options chain. Failing that, you can see options chains for individual stocks on the Nasdaq website.