Volatility is every stock trader’s best friend. As long as stocks are moving in one direction or another — or both! — there is the potential to profit. It’s when stocks are standing still that traders get killed. There are ways to make money in sideways markets — such as writing options contracts — but the trick is knowing when a market is going to be volatile or not, and acting accordingly.
Well, what if I told you there was a statistically sound technical indicator for predicting volatility over the next 3-12 months?
Do I have your attention? If so, let me introduce the Average Breadth Index, which is the topic of this week’s TradingTips.com video newsletter.
In this episode, you’ll learn:
- What the Average Breadth Index (ABI) is, its history, and how it’s calculated (0:36)
- How to interpret ABI (1:13)
- Other indicators you can use with ABI (2:38)
The video also contains an example of a real stock chart with an ABI underlay so you can see how the indicator works in a real-life scenario.
ABI is a great measure of volatility precisely because it is unconcerned with whether stocks are going up or down — just whether or not they’re moving at all. This allows ABI to focus on what it does best — predicting future
volatility — and be used in conjunction with other technical indicators in order to determine whether or not you should be going long or short. Thankfully, TradingTips.com has covered almost every technical indicator known to man, so after viewing this episode, be sure to visit our site for a quick refresher course on other indicators that can be used to complement ABI.
CEO, Wealthpire Inc.
P.S. Next week we’ll be looking at an exotic new indicator that’s been all over the news the past few weeks. What is it? You’ll have to tune in to find out!