Certain indicators can be used to trade volatile stocks but the trader must also monitor price action watching if the price is making higher swing highs or lower swing lows relative to prior waves to determine when indicator signals are taken, and when they are left alone. Here are two technical indicators you can use to trade volatile stocks, along with what to look for in regards to price action.
Keltner Channels
Keltner channels put an upper, middle and lower band around the price action on a stock chart. The indicator is most useful in strongly trending markets when the price is making higher highs and higher lows for an uptrend, or lower highs and lower lows for a downtrend.
During a strong uptrend the price will "ride" the upper Keltner channel and pullbacks will often barely reach the middle band, and not exceed the lower band.
The mid-band is therefore a potential entry point. A stop is placed roughly half to two-thirds of the way between the mid-band and the lower band. An exit is placed just above the upper band. Apply the same concept to downtrends. The price often tracks the lower Keltner channel line and pullbacks will often reach the middle band but not exceed the upper Keltner line. The middle line therefore provides a short-entry area, a stop is placed just inside the upper Keltner line and a target is below the lower Keltner line.
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