Cryptos usually swing much more than large stocks. This is often measured as the typical daily move: on normal days large stocks often move by 1 to 2%, large cryptos more by 2 to 4%, smaller ones even more. Stronger swings mean deeper declines along the way – the gets larger.
What the exercise shows
Both model curves use the same 250 random draws, only with different strength: the stock with 1.2%, the crypto with 3.5% daily swing. In series 1, the stock fell by at most 15.1% along the way, the crypto by 38.5%. Neither curve has a built-in trend.
Why volatility costs results
After −50% it takes +100% to get back to the start; after −80% even +400%. In the model the average of the daily moves is exactly zero. Even so, the stock ends at 98.2 and the crypto at 85.8 – losses weigh more than gains of the same size.
Planning for volatility
You cannot switch volatility off, but you can factor it in. Our rule measures turning points and the stop buffer in and sets the stop at the start of wave 1 – not in fixed percent. If you calculate with a fixed , you buy fewer shares with a wider stop (). Price gaps and exchange outages cannot be caught by this either.