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One of the most important concepts in Trade-Ideas is its volatility. Trade-Ideas always compares stocks to their baselines. We have to know how a stock normally trades to tell you what is different or unusual. The idea of volatility is to measure how much a stock normally fluctuates in a given period of time. Stock number one is obviously moving the most of these three. All three end up at the same place at the end, but they take different paths and they have different volatilities. Stock number two has a higher volatility than stock number three even though the total motion is the same. We use the least squares algorithm to penalize large moves and to defer small moves. To compute the volatility of the stock, we look at how much the stock's price moves during each period of time. The blue bar shows how much the stock moved. For consistency, we always talk about a chart with fifteen-minute bars. When we say a stock has moved one bar, we mean it has moved the average amount that it typically moves in one fifteen minute bar. We can actually apply these measurements to any time frame. We just use this for consistency. Now let’s look at volatility in action. The stock chart looks a lot like a classic head and shoulders pattern. But, the points don't line up exactly. So, how do we know this is good enough? Let's put this into context. If the stock price barely moved before this pattern, it makes the errors look bigger. The pattern doesn't look quite as good. Now the error looks smaller and the pattern looks better. In this case the pattern is too small to be interesting. It could be accounted for entirely by noise. If anything, we call this a consolidation pattern. Clearly the volatility has dropped significantly. In these examples we use the chart to estimate volatility. Of course, Trade-Ideas actually uses formulas to get objective results. Volatility is not limited to complicated technical analysis patterns. One of the most common questions we ask is .How much does the stock need to move before it is interesting?. The exact number of pennies or percent depends on the stock. Using volatility, we come up with good values that work across a range of stocks. The gap-up filter is one place the user can take advantage of the volatility. How would you describe this stock chart? You could use pennies or percent, but the best answer is to say that this stock gaped up by approximately one bar. The stock gaped up by two bars, and this one by four bars. From these pictures, you can see that a gap of one bar or less might as well be nothing. A gap of two bars can be accounted for by normal after hours trading. Four bars or more are interesting for most people. You don't have to estimate volatility based on a chart. You can get the exact values from our stock screener. Let's say you think its interesting when the cues gap up by twenty-five cents. The stock screener tells us that one volatility bar for the Q's is a little over eleven cents. So, two bars would be approximately twenty-five cents. Set the gap filtered to two bars. You only see QQQ when it is up by twenty-five cents. You will also see other stocks which have similar looking chart patterns. In addition to looking up specific stocks, you can also see lists of interesting stocks. Many of these are related to volatility. For example, if I want to know extreme values of how far a stock can be below its twenty day moving average I look at this list, The charts in the stock screener can give you some starting values for volatility, but ultimately you will need to just try things out. If you are getting too many alerts, make your settings more restrictive. If you are not getting enough alerts, make your setting less restrictive. Volatility is an important value, but it is not exactly precise. It gives you plenty of room to make changes.