In 1995 I published research that showed that when you compare different periods of historical volatility (for example a stock's 10-day historical volatility versus its 100-day historical volatility), you can identify times when the stock (and now ETF) will likely have a large move, often within a few days. This research has made its way onto a number of trading desks and I know it's still being used by some of the better options trading firms in Chicago.

The idea of being able to know when a big move is likely coming is strong because you can tie this research in with your directional strategies. You can potentially achieve outsized gains very quickly when you correctly predict the increased movement of the stock or ETF, along with the correct direction.

Today I'd like to encourage you to spend some time learning about what historical volatility is and how it works. If you look on the Internet you'll be able to find the basic knowledge you need in order to go to the next step here with me on this. Please make sure you do not confuse historical volatility with implied volatility. They are very different and you want to only focus on historical volatility for now.

This is from Larry Connors' Daily Battle Plan which he publishes each morning. Click here to learn more.

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