What is volatility?
Forex volatility is the measure of typical price fluctuations over a certain time, how rapidly a market’s prices change in the forex market and it is simply the standard deviation of returns.
Volatility is not always a bad factor because it can be an opportunity in trading. There is a difference between risk and volatility. Volatility is not as identical as a risk because volatility is in basic terms the standard deviation of returns and risk is the chance that an consequence or investment’s actual gains will vary from an expected outcome or return.
Key factors that have an effect on Volatility
Many factors influence the market and affect its volatility. There are certain things that you should be conscious of as a forex trader:
– Volatile currency pairs follow the technical areas for forex trading, like price patterns, resistance levels, support, etc.
– You have to continue to be updated with all the latest forex news and forex pair price and analysis so that you can analyze the market better.
– Any type of launch of data can influence the volatility of currency pairs.
– Technical analysis helps the traders with measuring volatility.
Apart from these factors, a forex trader must be conscious of what’s going on around the world such as massive information activities such as Brexit and trade wars that have massive influences on volatility.
Whenever a trader begins trading, he makes a trade by speculating on a currency to get stronger or even weaker as compared to the other, and if it achieves what the trader speculates or the aim a profit is made.
1. Tue Average Ranges (ATR) – the best tool
Created by J.W. Wilder, this is widely used in measuring the price changes in currency. This is a widely used indicator in forex.
2. Moving Averages
The four foremost types of Moving Averages are:
– Simple
– Smoothened
– Linearly Weighted and
– Exponential MA
MA indicator helps us to apprehend the market trend directions, whether or not they are trending upward downwards, any possibility of reversals. They also assist decide any flat market, if the price neither increases nor decreases.
3. Donchian channels
This is one of the technical indicators that help in the measurement of relative volatility with other financial instruments. This indicator applies to almost all types of financial products, be it equities, futures or forex market for that matter.
Thus, we have covered the three prescribed ways of measuring volatility. Being a part of forex trading you should know about the volatility and the approaches and skills to measure the price volatility of the currency.