Volatility - a characteristic of a particular financial instrument or the market in general, which shows the fluctuation of the value of a certain period of time. Most often expressed as a percentage (relative expression) or in paragraphs (absolute expression).
The most obvious example of the expression of volatility - is fixing the price movement in the form of candles. For example, since the opening of the candles on the chart H4 (one candle drawn 4 hours) and until its closing price reached its lowest level at 1.06679 and the maximum was equal to 1.07775. On the basis of the difference between the values of the data we can say that the volatility of the financial instrument in 4 hours was about 110 points on the four-digit quotation (1.07775 - 1.06679 = 0.01096) or 1.03% (0.01096 * 100 / 1.06679 = 1.027%).
Similarly, volatility may be determined on the basis of data for different time intervals, the most appropriate tasks trader or a trading strategy. For example, for long-term investment can be analyzed volatility for a week or a month, and for short-term transactions - for a day or an hour.
The total value of the volatility.
This figure can be considered fundamental to the trade as a trader makes a profit from the difference between the purchase price and the sale price of the asset. Accordingly, the greater the volatility, the greater the potential profit. For example, on one currency pair in one hour the price has passed away only 10 points, but in the second - 100 points. When the same amount of the transaction in the first case, the potential gain of 10 times less than in the second. But at the same time, high volatility and large potential loss as the price with the same success can go against the trader. In general, valid chain of "High volatility - High profit potential - high risk" and vice versa.
The value of the volatility in the trader's activity can be evaluated by the following important points:
Aggressiveness of Trading - the more profit target trader, the higher the risk he had to take. And here there are two options - either a small amount of the transaction and the currency pair is highly volatile or a large volume of transactions and the pair with the lowest volatility.
Trading Hours - the volatility is very dependent on the time of day, as different trading session the market has more or less participants. The more participants, the greater the demand for the currency, the higher its volatility.
The duration of trade - on the currency pair with low volatility may take a few days, the price has changed by 100 points, and vysokovolatilnoy pair - just a few minutes. Again, the issue of trade style of aggressiveness.
Risk management - as already mentioned above, the high volatility - is a high risk of loss. Therefore, we must correctly assess the potential gains and potential losses on currency pairs on the basis of their volatility.
Statistics.
First of all we must remember that volatility - this is not a constant. It depends on many factors and can not be predicted exactly. The calculation is made based on historical data, which were generated in the difficult market conditions, which will never be repeated. So you should treat the figures as an exemplary reference point.
It is also important to understand that the most direct impact on the volatility has a number of members that are present in the market. Therefore, first of all, it is necessary to take into account the volatility calculated on the trading session. Below are the average data points on the most popular currency pairs.
Forex Market volatility
More detailed and current data on the volatility of the financial instruments can be found in the special services, that collect and analyze the whole spectrum of information. Such projects are particularly important for traders who have chosen the path of quality and fine-tuned trade, because thanks to them, you can make the most clear and comprehensive picture of the market.
Such analytical services, quite a lot, but the most well-known and quality the following two projects include:
1. Myfxbook.com - very well-known and high-quality service, which is a whole social network for traders. Its functionality can be described for a long time, but now it's purely about volatility. Following the link below will take you to a page with information on the volatility of the currency pair (by default, there is selected a total of 20) for the nine time intervals - from one minute to one month. Link.
2. Mataf.net - also a good project for complex analytics. Probably, the only difference is a visual representation of data in the form of graphs and charts. But this choice of time interval less flexible and intuitive - used a week. To familiarize with the project, you can follow this link.
The use of volatility.
Now that you understand the essence of this option, why is it so important, and have direct access to the most recent and reliable data. As a guide to practical application, use the following rules:
Consider trading sessions - depending on your trading style to use the open trades more or less volatile time. Conservative trading strategies with small values of stop lossovbudut bring continuous losses on currency pairs at the peak of their volatility. This aggressive strategy with big goals for profits and will not give fruit in the weak currency pairs, which just is not enough power for large motions that are expected of them.
The levels of Stop Loss and Take Profit - this rule follows from the previous one and says that the high volatility of the transaction value with a small stop loss will often be closed with a loss. The price is very much moving in both directions, and before you go to your side, it can easily go several times against you. Also worth a realistic approach to setting targets for return on currency pairs with low volatility - if the daily volatility is equal to 100 points, and the price has increased since the opening of 60 points, something stupid to buy the currency, and put the profit target of more than 40 points, as the statistical price potential is already on the wane.
Pay attention to the news - it's probably one of the strongest factors that influence the currency volatility. When the output is very important news for the price is a few seconds to take off on a 100-150 points in the same direction! And that happens more often, for 10-15 minutes until the facts of the news on expectations of market participants price behaves very poorly and can move in both directions with equal force. These nuances worth bearing in mind when opening trades shortly before the news or already hold open positions.
In conclusion, it can be concluded that volatility - this is the main one, if handled adroitly with her trade, but at the same time the main enemy, and if you use it incorrectly. Understand the market, its principles, analyze and feel when volatility for you, and when the mind, and then your trade will come to a qualitatively new level!
