Charts and timeframes
Volatility
Volatility is how much and how fast a price moves over a period: high volatility means wide swings, low volatility means narrow ones.
Volatility measures the size of price movement, not its direction. A stock that moves 3 per cent a day is more volatile than one that moves 0.5 per cent, whether it is rising or falling. Historical volatility is calculated from past prices, usually as the standard deviation of returns. Implied volatility is backed out of option prices and shows what the options market expects.
In Indian markets volatility changes by instrument and by hour. Bank Nifty moves faster and wider than Nifty. Crude oil and natural gas on MCX are quieter in the morning and move most in the evening when US markets are open, with the weekly US inventory data as a regular trigger. The first fifteen minutes on NSE are usually the widest of the day.
It matters because your stop-loss and quantity depend on it. A 20-point stop-loss may be sensible on a quiet Nifty afternoon and useless on a results day. When volatility rises, the stop-loss must widen and quantity must fall to keep rupee risk the same. Option buyers also pay for it: premiums rise with volatility and fall when it drops, even if the index has not moved.
The common mistake is using one fixed stop-loss in points for every instrument and every day. The second is reading high volatility as opportunity only. Wide moves come with wide spreads, slippage and whipsaws. A calm trending market is usually easier to trade than a violent one.
Worked example
Same rupee risk on a quiet day and a wild day
Illustrative numbers, with a made-up lot of 50 units. On a quiet day you trade Nifty with a 40-point stop-loss. Risk is 40 x 50 = ₹2,000 per lot, so a ₹6,000 risk budget allows 3 lots. On an event day candles are three times as large and the stop-loss has to be 120 points. Risk is 120 x 50 = ₹6,000 per lot, so the budget allows 1 lot. The real lot size is in the NSE circular.
In WizeBuySell
WizeBuySell does not display a volatility reading or implied volatility. The entry, stop-loss and targets are price levels on your chart, so you can see the stop-loss distance in points before you take the trade. In a volatile session that distance, and the slippage around it, can be larger than usual. The software does not adjust your quantity. Fitting quantity to risk is your job.