Yesterday (6/6/2017) we had a training webinar about our Volatility Quotient. We received great feedback and even better questions – more than we could answer in the allotted time. So we’re using today’s Product Tip as a follow up to yesterday’s training.
Remember, you can always watch the training session again.
How does TradeStops define Volatility?
We define volatility as the normal change in a position’s price over time. The Volatility Quotient, or VQ%, tells you how volatile a stock is. In other words, it tells you how much room you can give a stock to not get stopped out too early.
More conservative stocks like J&J have lower VQs (as of 6/7/2017 11.87%) while more speculative / less certain stocks like Tesla have higher VQs (as of 6/7/2017 29.34%). The lower the VQ, the more stable the movement of that stock. Higher VQ percentages indicate the stock is more volatile in its market moves over time.
How can I check the VQ before I purchase a stock?
There are numerous stocks out there to choose from. Finding the right one for you can take a little research. We make this process easy in TradeStops. You can find the VQ for your new potential investment using the Stock Analyzer.
From within TradeStops, click on the Research Tab in the top menu. Then, click on Stock Analyzer.
If you do not see it for some reason, refresh your internet browser. TradeStops works on most internet browsers, like Microsoft Internet Explorer, Chrome, Safari or Firefox.
In the page that pops up, type in a ticker symbol that interests you.
Then, select if your position is Long or Short.
Next, pick an entry date. We preset this to yesterday’s date. Finally, click the green Analyze button.
A results page will display. Here, you can find useful information about your new potential investment like the VQ and the SSI.
To look up another potential investment, simply follow the steps from above again. This will be the fastest way to find the VQ of a new potential investment while also finding other useful information.
Please note that we adjust positions for dividends in our research tools. This setting cannot be changed.
When is the VQ too high?
Remember, the higher the VQ the riskier the stock is.
As a guideline, we define the VQ into risk categories:
- 0-15% Low Risk
- 15-30% Medium Risk
- 30-50% High Risk
- 50%+ Sky High Risk
What kind of investor are you? Are you comfortable with a stock moving up and down 30% like Tesla, or would you like something that doesn’t take you for as much of a ride like Johnson & Johnson?
Volatility isn’t always a bad thing. The potential exists to make money on those more volatile stocks as they move in the market. Choosing a more volatile stock or a safer stock is up to you. It just depends on your personal risk tolerance.
You can read more about picking risky or non-risky stocks here.
Can I set automatic VQ alerts on all my positions?
Yes! This is done from the Settings within TradeStops.
First, click on your name in the top right corner of the TradeStops program, and then click Settings. This makes the Settings menus appear. In the submenu on the left side of the screen, click Alerts.
There is a top section titled “Automatic Alert Creation.” Make sure that the settings are set to “Yes” if you want alerts automatically created for your stocks and options.
In the drop-down box for stock alert type, select VQ Trailing Stop. This will automatically create VQ alerts for all new stocks you add to TradeStops. Please note this will not apply to current stocks.
Make sure to click the green “Save” button at the bottom of the page to save your changes.
How do I edit the date the VQ alert will trail from?
When you synced your positions from your broker or entered them manually, you might not have entered an entry date or you might have just used a temporary date. You can edit this date to reflect your actual entry date. This is done from the Positions & Alerts tab.
First, click on the Positions & Alerts tab. Next, click on the ticker that needs a new entry date. The Position Card Page will display. Click on the Pencil icon from the Position Details subtab.
This will make the information editable. Please note that shares cannot be edited if you are viewing a synced position.
If you don’t remember the Entry Price for your Entry Date, that’s okay. Just click on the Get Quote button. That will populate the close price for that day.
Once you have made your changes, remember to click the Save button.
A message will appear asking you if you want to adjust your VQ alert for this new data that you entered.
Confirm that you want to make this change so that your alert will be accurate.
When does the VQ tell me to exit a stock?
These stops are set at a defined percentage away from a security’s current close price.
Please note that we do not use intraday pricing for our calculations. All close prices are updated on TradeStops by 8pm Eastern.
As we mentioned earlier, TradeStops defines volatility as the normal change in a position’s price over time. Each week the VQ is recalculated so that it stays the most accurate for you.
If your stock goes above the normal expected volatility, the VQ alert will be triggered, and you will be stopped out of the position. At that time, the stock is behaving in a way that is not normal. There is a potential for loss as the stock continues to act this way.
Once the alert has been triggered, you must decide if you want to hold or sell.
We hope that this question and answer session has help you better understand how the VQ functions within TradeStops. It gives you a quick way of knowing how volatile your stock is and how much room you need to give it to not get stopped out too early or too late.
If you have more questions, please feel free to contact our Customer Success team at [email protected]. They will be glad to help you.
To your continued success,
Customer Success Team