Recently, we mentioned to you that applying historical volatility correctly can allow you to potentially time big market moves. I first published this research 14 years ago and it is still valid today, being used by many trading desks, especially options trading desks that rely upon volatility to guide their models.

For stocks and ETFs, if you can combine timing a big move with directional strategies, you have the potential to capture large gains when you're correct.

The key to understanding this is to remember the following: Volatility Reverts to Its Mean. This was proven by the academic world many decades ago and is one of the real truisms in trading.

In 1995 I published research that showed the simplest way to identify when a large move is likely near is to take the 100-day historical volatility (HV) reading and the 10- day historical volatility reading of a security. If the 10-day reading is 1/2 or lower than the 100-day reading, a big move is likely near. That means if the 100-day HV reading is 40 and the 10-day HV reading is under 20, the ETF or stock is likely to have a large move very soon. Many other time frames can be applied to this as this concept is deep in opportunities

Over the next few days, I'll go deeper into this topic and discuss the many ways you can apply it to your research and trading. It's an excellent tool and it should help you identify ahead of time many large market moves for many years to come.

Special Note: My new book High Probability ETF Trading is now available in softcover. If you'd like to order your copy (and read the online version today) please click here.

This is from Larry Connors Daily Battle Plan which he publishes each morning. If you'd like to take a free trial click here, or call 1-888-484-8220 ext 1 to start your free trial today.

Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.