How to Navigate Market Volatility Effectively
When we think about market volatility, the VIX—often called the "fear index"—usually comes to mind. The VIX measures expected volatility in the S&P 500 over the next 30 days, based on options market data. However, it’s important to remember that each asset has its own unique volatility profile. That’s why we developed the Monthly Volatility Percentage.
In my trading routine, I typically follow these steps:
- Check the VIX
- Review the Monthly Volatility Percentage
- Assess the ZONE Number
- Evaluate the Trade Protect Score
A word of caution: It's wise to trade stocks with a high Trade Protect Score and solid fundamentals to avoid companies that may be on the brink of bankruptcy.
Understanding Your Trading and Investment Universe
Many traders narrow their focus to a smaller set of tradable stocks, even though the investment universe is vast. This universe includes all possible investments—stocks, crypto, forex, and more. While theoretically, you could trade anything within this universe, in practice, it’s more effective to concentrate on a well-chosen subset.
Once you’ve filtered out potentially risky stocks, check the volatility percentage for each stock on your list. Personally, I avoid stocks with extreme volatility. Don’t get me wrong—you need some volatility to profit, but I steer clear of stocks with erratic, unpredictable price movements.
For instance, AMD is roughly twice as volatile as META. An 8% to 10% volatility range is fairly typical. If I’m seeking less volatility and more stable price action, I’ll choose a stock with a lower ATR%, like IBM, which hovers around 7%.
