Volume and volatility

Volatility is how much a price usually moves. Some shares drift a few cents a day; others swing a dollar or more without any news. Knowing which kind you hold matters before you place a stop.

One plain measure is the average daily range: for each recent day take the high minus the low (the top and bottom of the candle, as in Candles and timeframes), then average them.

On Pebble, over the same 20 days in March 2026, calm Northwind Foods had ranges that add up to 6.69 dollars, so about 0.33 a day. Jumpy Bluefin Energy moved several times more each day.

The range has no direction: a day that rose 1 dollar and a day that fell 1 dollar can have the same range. It also isn't a forecast. It describes how wide ordinary days have been lately, which is exactly what you need to know to keep a stop away from everyday noise.

The recipe takes three steps: for every day subtract the low from the high, add up those ranges, and divide by the number of days.

Pebble, 2026-03-02 to 2026-03-27, 20 trading days:

• Northwind Foods: the ranges add up to 6.69, so 6.69 ÷ 20 ≈ 0.33 a day.
• Bluefin Energy: the ranges add up to 23.78, so 23.78 ÷ 20 ≈ 1.19 a day.

Bluefin Energy travels more than three and a half times as far on an ordinary day. That is why one fixed stop distance can't fit both: 40 cents is more than a whole usual day for Northwind Foods and only a third of one for Bluefin Energy.

Choose the window on purpose. Twenty days is a common, plain choice; a shorter window reacts to a recent storm faster, a longer one is steadier. Either way the number describes the recent past and changes when the market calms down or heats up, so recompute it before each new trade.

A stop, from The stop: where it goes and why, belongs where the idea of the trade is proven wrong. If it sits closer than the price's ordinary daily wiggle, it gets hit on days when nothing is wrong at all.

A quick check on Pebble: on how many of the 20 days did the price dip at least 40 cents below that day's open? A 40-cent stop under the open would have been hit on each of those days.

• Northwind Foods (about 0.33 a day): 2 days of 20.
• Bluefin Energy (about 1.19 a day): 10 days of 20.

On Bluefin Energy, half of all ordinary days would have knocked Nora out, with no news and no change in the story. Each exit costs a small loss plus the spread and commission, and then the price often goes the planned way without her.

So "small stop, small loss" is only half true: a stop that is too tight turns one planned loss into many small ones.

The fix for a stop inside the noise is not "no stop". It is a stop placed outside the noise and a position small enough that the dollar loss stays the same.

One common approach is to place the stop about two usual daily ranges from the entry, or beyond a level if the plan uses one. For Bluefin Energy: 2 × 1.19 = 2.38.

Then size the trade as in Position size from risk and stop. On a 10,000 practice account, 1% risk is 100 dollars; set aside about 3 dollars of costs, so 97 dollars can go to the stop distance.

• Shares = 97 ÷ 2.38 ≈ 40.76, rounded down to 40.
• Check: 40 × 2.38 = 95.20, plus 3 of costs = 98.20, under 100.

The wider stop does not mean a bigger loss; it means fewer shares. "Two ranges" is a plain habit, not a law: a level on the chart may justify more or less.

Sizing by volatility gives the calm share more shares and the jumpy one fewer, while the possible loss stays about the same.

Both trades put about 1% of the 10,000 account at risk. The difference sits in the share count, not in the loss.

Two limits remain. A gap (a price jump between one close and the next open) can open beyond any stop, so the real loss can be bigger than planned: this is a plan, not a guarantee. And position size is also capped by what the account can afford to buy: 146 shares of a 30-dollar share cost about 4,400, which a 10,000 account can cover, but on a pricier share the cap may bind first.

Volume is the number of shares that changed hands in a period. Every share bought was sold by someone, so each unit of volume has a buyer and a seller. A big number means lots of activity; it can't say which side was right.

Bluefin Energy on Pebble: on 2026-03-18 it jumped to a close of 47.89 on 254,922 shares, more than double its 20-day average of 106,524. Many traders read such a day as "confirmed". Three days later the close was 46.88, below the spike.

That one case doesn't prove the opposite either; after another busy day the price might keep going. The honest summary: the evidence that a volume spike reliably predicts direction is weak, and a single example tells you nothing. Treat "high volume confirms the move" as a claim that needs many trades after costs, not as a rule.

Volume is useful when you read it as a description of trading conditions, not of direction. Marc, the experienced trader in this course, uses it for two things.

• Very low volume is a warning about liquidity, the ease of trading without moving the price, from Bid, ask, spread and liquidity. With few trades, the spread can be wide and a market order can fill well away from the last price. That is a real cost you can see before trading.
• A sudden spike says that something happened: a report, news, a big order. It is a cue to read what happened before touching anything, not a signal to jump in.

Neither use claims to know where the price goes next. On Pebble, Bluefin Energy's busy day of 254,922 shares was a good reason to check the news, and no reason at all to expect the jump to continue.

A fair rule of thumb: volume can change how you place an order, not whether the idea is right.

The lesson's ideas fit together as a short checklist before a trade on Pebble:

• The stop marks the price where the idea is wrong. It answers "where do I get out?"
• The average daily range says how much the price wiggles on ordinary days. It answers "is my stop far enough from the noise?" On Bluefin Energy, about 1.19 a day, so a stop around 2.38 away.
• Fixed dollar risk keeps the possible loss the same whatever the distance. It answers "how many shares?" 97 ÷ 2.38 → 40 shares.
• Volume describes activity and liquidity. It answers "how easily will my order fill?", never "which way will it go?"

Mixing up the jobs causes the classic mistakes: a tight stop because it "feels" small, or a big position because volume "confirmed" the move.

How it fits together: volatility sets the stop distance, fixed dollar risk turns it into a share count, and volume only describes conditions. The next lesson, Case: choose at most three tools, asks you to pick and defend a small toolkit.