If we look at the example below. In the six month period shown here the company only managed around 10% growth (or around 1.5% per month).

If you chose this stock to invest in, what would be the probability based on recent performance that you will make 10% per month in the next uptrend? If the market conditions and company performance had seen the share price grow at a steady rate of 1.5%, then it is highly unlikely if all things remain equal that this will suddenly leap to 10%. Unless aspects of the company radically change, past volatility is a guide to future volatility.

Applying this guideline to the example below, you can see it holds true. The rate of change either up or down is consistently volatile. It does not suddenly flatten out to the 1.5% change per month you see in the chart above.

The key aspect to volatility is that if you want to make 10% per month, then you have to select a stock that is capable of increasing in price by 10% per month. If you ask yourself how much money you want to make out of the share market, the first answer you will most likely say is as much as possible. But as an investor, you have to become aware of what level of risk you are willing to take to get those returns. In any investment you make, there is a risk/reward ratio. The higher the reward, the higher the risk. Trading is a process of reducing risk as much as possible, but you will never eliminate risk entirely. This is also known as the sleep at night factor. There is no point buying a stock and not being comfortable with your decision.

The example below, a company from the from the Materials sector. This company has a share price of less than a cent. So with normal day to day price movements, the share price could fluctuate as much as 50%.

The important question you need to ask yourself before investing in any share is - Am I comfortable with my decision?