When
starting to invest, each trader learns some basics without which it is
impossible to understand the financial market. Most beginners have certainly come
across the term volatility when studying basic Forex strategies so it will be
useful to clarify the concept.
Essentially,
volatility is the price dynamics of a certain asset within a selected
timeframe. The longer the chosen period the wider the price range. To put it
simply, volatility is the indicator of the change between the minimum and
maximum value of a currency pair within an hour, day, week, or year. The value is
expressed in pips or percentage points.
The Forex market is considered the most
volatile in the world, which provides unlimited opportunities for earning.
Prices change every second, and with the right strategies, you can quickly
increase your capital.
The most
volatile currency pairs can be profitable even on small timeframes. There are also
some non-volatile assets in the financial market. They show a constant upward
trend while the price fluctuations do not go beyond a certain range.
One of the most non-volatile assets is the
EUR/GBP pair. Exactly the opposite is the GBP/JPY pair, which is very volatile
and can move more than 100 pips per day.
Hundreds of
factors influence asset price dynamics. The main ones are:
When studying
what Forex volatility is, it becomes clear that you can develop a fairly
successful behavioral strategy if you constantly follow the news.
In
particular, price dynamics can be influenced by:
After understanding
what Forex volatility is, you should not forget that there are several
technical indicators in the market, which allow you to enter the market right on
time and make more profit. A correct interpretation of their signals is the key
here.
Any volatility
indicator will show the general state of the market and help determine if your
behavioral strategy fits the situation. If you are not in favor of long-term
strategies, you just cannot do without volatility indicators.
With a volatility indicator, you can determine
dozens of market characteristics, including:
It should
be remembered that each indicator focuses on specific market characteristics. If
you are used to working in different directions, you can use a few indicators
at once, the most popular of which are ATR, Parabolic SAR, CCI, Bollinger
Bands, Stochastic, OSMA, etc.