• Blog
  • Why is Market Volatility THE KEY to 10x Crypto Stakes?

Why is Market Volatility THE KEY to 10x Crypto Stakes?

Share article

You can become a better trader even during high market volatility using an AI-powered cryptocurrency trading bot to help you trade 24/7 and automate your trading.

What Is Stock Market Volatility?

Stock market volatility refers to the rapid fluctuations in the prices of stocks over short periods of time. These swings are driven by many factors, including investor sentiment, economic news, geopolitical events, and corporate earnings reports.

While heightened volatility can be a signal of trouble ahead, it’s all but unavoidable in long-term investing. In fact, some studies suggest that investors who invest in volatile markets tend to outperform those who stick with safer investments.

The key to managing volatility successfully is to identify the causes and take steps to mitigate them. For example, you want to avoid buying into a falling trend because that makes your portfolio more vulnerable to further declines. You might also consider selling off shares in companies whose profits fall sharply, since that could lead to lower future earnings.

Volatility Definition

The term “market volatility” refers to the frequency and magnitude of changes in prices. An increase in market volatility indicates greater risk. A decrease in market volatility indicates less risk. Volatility is measured by calculating historical data and comparing it to similar periods. For example, if the S&P 500 index increased 30% over the course of one month, while the previous month saw a 5% decline, you could say that the stock market had experienced a high level of volatility during that period.

How to Calculate Volatility

Volatility is often used to describe how much stocks fluctuate over time. High volatility indicates that there are many ups and downs throughout the day, while low volatility indicates that the price changes very little during the trading period. Let’s take a look at how to calculate volatility.

Step #1 – Find the Mean

The mean is simply the average value of each individual number. In our case, it would be the sum of all numbers divided by the total amount of numbers. So, in our example, the mean is equal to ($1 + $2 +… + $10).

Step #2 – Find Standard Deviation

Standard deviation is the measure of how far away from the mean each number is. If you had a group of 10 people and asked them to write down the height of a person standing next to them, you could find out what the average height of the group is. But, if you found that the tallest person wrote down 5 feet tall, the shortest person wrote down 3 feet tall, and everyone else wrote down 4 feet tall, you’d know that the standard deviation is 2.5 feet.

In our case, we’ll use the same method to figure out the standard deviation. We’re looking at the difference between each number and the mean. So, the first number is $1, the second number is $2, and the tenth number is $10. Then, divide those differences by the mean.

Step #3 – Find Variance

Implied Volatility vs. Historical Volatility

The term implied volatility refers to the expected volatility of a stock over a given period of time. Traders use implied volatility to determine whether the current price of a security corresponds to what the market expects the security to do in the future. It is calculated by dividing the current price of an option by its theoretical value. In theory, if you divide the current price of a call option by its intrinsic value, you will get the implied volatility of the call option. Similarly, if you divide the price of a put option by its intrinsic value you will get the implied volatilities of the put option.

Historical volatility is another measure used to predict future movements of a stock. It is based on historical data and is measured by taking the standard deviation of daily returns. For example, if a stock had a return of 10% per day, its historical volatility would be 10%. If the same stock had a return of 20%, its historical volatility would be 20%.

Are Crypto Trading Bots Effective with Market Volatility?

Just think about the fact that Wall Street has been using algorithmic trading since long before crypto exchanges were created. Within the past decade, algorithmic trading bots have overtaken the financial industry, and they’re responsible for most of the activity on Wall Street.

The question isn’t whether they work; it’s how well they work. Their effectiveness relies on several factors, including the automated trading platform and bots as well as the level of experience you have with the crypto market.

Crypto trading bots aren’t an instant path to success. They’re automated, not automatic. To be profitable, crypto traders need to understand that building a good bot requires clear goals, knowledge of crypto trading strategies, and market conditions.

How Can You Benefit From Crypto Trading Bots?

Many reports suggest that automated computer programs do up to 80% of trading on Wall Street. Few private traders use crypto trading bot services because they perceive them to be complex and costly. Not everyone is a Python programmer or financial expert, but cryptocurrency trading bot platforms are helping both inexperienced traders and professional traders, level the playing field across cryptocurrency markets.

Emotionless Trading

More than 80% of private investors lose money for various reasons. Emotions can cause us to make mistakes in the crypto trade. As much as 39% of manual trading is influenced emotionally, leading us to make irrational decisions.

Instead of trying to beat the market, be among the 20% of traders who make a profit by using trading bots to ensure a systematic, non-emotional approach to trading.

Faster Trading Speed

Time is money. Bots are faster: millions of computations and thousands of transactions across different time zones and markets almost instantly creating automatic trading. Bots trade in fractions of seconds – far faster than any one person can accomplish in cryptocurrency exchanges.

Paper Trading and Backtesting

Traders should use trading simulators when learning to day trade for the same reason pilots learn to fly with flight simulators. We learn by doing; however, we don’t want to risk losing money in the process. Even advanced traders can benefit from trading simulators.

Backtesting and paper trading let you test out a particular automated trading strategy or price model by simulating its performance using historical data. The point isn’t to predict the future but to determine how well a custom trading strategy has performed historically. Armed with reliable backtesting and an accurate set, you can explore different strategies, trading rules, and trading indicators and build confidence before you’re ready for a real bet.

Diversifying Your Risk

Trading bots are about reducing risk by spreading your investments across multiple assets. As we all know, cryptocurrency can be a highly volatile market, so a prudent trading strategy for crypto investors should involve risk diversification. One way to diversify your risk is to run different trading bots. While a diversified portfolio is not foolproof, it can balance risk and reward to reduce your exposure to one specific investment for portfolio management.

Remember Your Long-Term Plan

Investors are often told to build a balanced portfolio, one that includes stocks, bonds, real estate, commodities, and cash—all in roughly equal proportions. This advice makes sense because it ensures that investors don’t put too much weight on just one asset class. After all, what good does having 50% of your money invested in stocks do if half of that goes up and half goes down?

But there’s another reason why a balanced portfolio works: It helps keep investors focused on the big picture. When markets go up, people tend to think about how great things will be once they reach retirement. In contrast, when markets fall, many people start thinking about how hard life might be without their investments. We can’t make decisions based on the market’s daily volatility.

This tendency is natural, but it can lead to problems. For example, if you’re trying to save for retirement, you probably shouldn’t invest most of your money in stocks. Instead, you want to make sure that you have enough equity saved up to cover at least three months of living expenses. So if the stock market fell 10%, you adjust your savings plan accordingly.

When we look at the history of global financial conditions, there are volatile stocks at some point in history within the market. History proves that diverse investing is the best way to protect your financial portfolio through volatile market conditions. These days, for many people, that includes crypto investing.

Endotech Alpha

Share article