Every trader has to deal with volatility on a daily basis, on which, in fact, the profitability of each trade depends. Several technical indicators have been developed specifically to determine the range of price fluctuations in a financial market. Each of them has its pros and cons, so specialists recommend using indicators in combination to filter out unnecessary “noise” and let through the most credible signals. In the article, we will look at the TOP 3 of the most useful and efficient indicators chosen by the most successful market participants.
Volatile periods in Forex are unpredictable, and in the worst possible case, can cause big movements up or down, which makes trading extremely difficult. As a rule, volatility is highly dependent on the news: once an important piece of news has been made public, you can expect extreme volatility. Weak price fluctuations are observed during a consolidation period.
Depending on the market situation, the trader's strategy should also be adjusted. The situations are as follows:
As you can see, once you understand what phase Forex is currently in, it is very easy to improve your strategy and adapt it to the market conditions. As a result, enjoy more profit and less loss.
ADX is one of the most popular market indicators. It is designed to measure the strength of a trend. It analyzes the maximum and minimum prices for a selected period of time. Usually, newcomers to trading choose a period of 14.
Until the indicator rises, the trend continues to strengthen, but once it falls, the trend is weakening.
The main downside of the ADX indicator is that it is unable to show the direction of a trend. The indicator is also considered lagging and cannot give timely signals.
The tool is designed to measure the true range over a specified period of time. As in the previous case, the period is most often 14.
A feature of the true range is working with the preceding bar's closing price.
The indicator can measure only the range of price fluctuations, while it cannot confirm the presence or absence of a trend. In reality, this sometimes misleads traders. For example, the market may well be volatile when there is no clear trend on the charts and the price fluctuates in the minimum range.
The disadvantages of the indicator:
This indicator can also be used to handle volatility. The undeniable advantage of Bollinger bands is that they allow you to see not only the volatility but also the market trend.
When using the indicator, it is important to know that:
Despite the advanced functionality of Bollinger Bands, the indicator cannot be considered ideal since it has a certain delay in the formation of signals. But in any case, the use of volatility indicators in your strategy for successful trading in the financial market is absolutely necessary.