HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
MultiBank Group information and reviews
MultiBank Group
84%

Volatility: What It Is and Why You Should Know About It


Everyone who has ever dealt with trading has come across such a thing as volatility. It is easy to guess that this concept is important, since it is talked about, discussed in textbooks and various articles. The choice of a trading strategy, money management and, accordingly, the success of trading depend on volatility. But what is volatility? Let's figure it out.

The Concept of Volatility in Complex and Simple Words

The most common definition in textbooks is: “Volatility is a statistical financial indicator that characterizes the variability of the price of something.” And further: "Volatility is the most important financial indicator and concept in financial risk management, where it is a measure of the risk of using a financial instrument for a given period of time." Simply, volatility is the degree of stability of fluctuations in the exchange rate of a currency or another asset: a stock, a stock index, gold, oil or cryptocurrency. If the change in the value of an asset in a given period occurs evenly and within the expected range, the volatility is considered low. If we see sharp, uneven exchange rate jumps with a large spread, this is a sign of high volatility.

In case of high volatility, the price chart shows large bars or Japanese candlesticks in one direction, or, conversely, a sharp, repeated trend change. We can very often observe such a situation after the release of any important economic news or in the event of unexpected geopolitical events.   

Low volatility indicates that the market is calm, sleeping, or dormant. This situation happens, for example, during the Christmas holidays, bank holidays or before the end of the reporting period, a month or a quarter, when large banks and funds sum up intermediate results. The market often freezes in anticipation of the publication of important macro-economic indicators, such as, for example, NFP (non-farm payrolls): the number of new jobs outside the US agricultural sector.

It should be borne in mind that trading activity, both in general and for specific currency pairs, also varies during different trading sessions. For example, the Pacific session is characterized by rather low volatility and is the calmest. The maximum trading volumes are reached at the intersection of the European and American sessions. The activity reaches its greatest extent at this time, since these are the two largest world markets: 70% of all Forex transactions occur during the European session and 80% during the American session.

Periods of low volatility are clearly visible on the charts in the form of narrow side corridors (they are usually called flat). However, a calm, uniform movement along the trend in a certain channel can also be considered a period of low volatility.

Well, it is clear that if there is high and low volatility, then there should be typical (standard) volatility, which corresponds to the average distance between the lows and highs of the price in a certain period (day, month or year).

It is clear that of these three parameters, the last one is the most important for a trader, since it is this parameter that determines the strategy and the moments for opening and closing trading orders. Expected volatility depends on a number of factors, including historical and expected historical volatility. It is also necessary to take into account the current economic and political situation, and upcoming events (release of macroeconomic statistics, market conditions, elections, trade sanctions, hot conflicts, etc.). In order to get a fairly accurate forecast, you also need to add to all this technical analysis readings, including those support/resistance levels that the asset has to overcome.

Volatility and Flat Indicators

It can be seen from the above that it is quite difficult to make a forecast on the volatility of a particular trading instrument accurately and promptly. This is where indicators can come to the rescue, many of which are already built into the standard interface of the MetaTrader 4 (MT4) trading terminal. This platform has been the most popular in the world for many years, and that is why the NordFX broker offers it to its clients.

Volatility indicators can become an indispensable tool for you and will allow you to clearly see and analyze the amplitude of price fluctuations of a particular trading asset on each of the timeframes. Based on this analysis, it is possible not only to determine the current trend, but also to make a forecast for the future, as well as calculate entry and exit points to the market, taking into account the possible price slippage. We will not describe in detail the instructions for using these indicators here (they can be easily found online), just mention the main ones and give them brief characteristics.

It is also worth mentioning such a well-known indicator as Alligator. True, unlike the ATR, Bollinger Bands and CCI, it is usually referred to as a flat indicator.  The Alligator is based on 3 Moving Averages, and when these lines are in an intertwined state and do not have a clear angle of inclination, it is considered that the market is dominated by a flat.

In general, it should be noted that there are a lot of volatility and flat indicators. These are both unique author's developments and modifications of existing ones. They can either be bought on specialized Internet resources or downloaded for free. Some of them, even very expensive ones, may be completely useless. Other, free ones can be of invaluable help to you. In addition to the indicators themselves, there are many trading strategies using them.

However, before moving on to trading with real money, as usual, we strongly recommend that you try out these indicators and strategies on the NordFX free demo account. It is quite possible that you will be able to optimize their work for a specific asset and in accordance with your trading skills and preferences. And this, in turn, will help you achieve great success in the financial markets.

#source


RELATED

What is Litecoin?

Litecoin is a form of peer-to-peer cryptocurrency (digital money). It was created after Bitcoin, making it the second oldest cryptocurrency. Litecoin was founded by Charlie Lee...

Basic guide to Forex risk management strategies

Trading risk management is vital to becoming a successful trader and making money online. Learn the risks of poor risk management and discover how you could...

How to Trade Major Currency Pairs

The major currency pairs traded by forex traders around the world are the following: EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, NZD/USD...

Best Online Forex Trading Tips for Beginners

As a forex trader you must have come across lots of information about trading forex. One of the biggest challenges is finding the right information for you...

Three key aspects of a trustworthy broker

In recent years, trading on financial markets, especially Forex, has proven to be a viable and popular source of consistent gains with potential immediate returns. With that in mind, many aspiring traders embark on their journey in search of financial freedom — and inevitably face the challenge of choosing a broker they can rely on.

IronFX: Leverage in Forex. Complete Guide

Leverage is simply borrowed funds that traders use to trade. In other words, it refers to the ability that traders have when opening an account with a forex broker...

Understanding the Nuances of Limit Orders in Trading

In the intricate and fluctuating world of trading, limit orders emerge as an essential tool for investors and traders aiming to assert control over their transaction prices...

Forex vs. CFD: Which One is Better?

Probably, every trader has faced the abbreviation CFD. But if you ask what this means, in most cases, the answer is: it's something similar to Forex, only for stocks...

What Is Forex Trading? The Basic Input You Must Know

You have heard about forex trading, but do you know what is forex trading? Trading, no matter how lucrative people tend to talk about it, Forex isn't easy...

What is a stablecoin?

Stablecoins play a significant role in the global cryptocurrency markets, providing a range of use cases for traders, investors, and active crypto users...

Eight Expert Forex Trading Tips to Maximize Your Success

Forex trading is a thrilling but challenging endeavor. While it offers the potential for significant financial gains, the volatile nature of the markets can also lead to substantial losses...

Demystifying Stock Exchanges: The Heart of Financial Markets

Understanding the inner workings of stock exchanges is crucial for traders and investors. These financial powerhouses are more than just platforms for trading...

Crypto rading for Beginners: Best Strategies and Patterns

Today, there are more than 19,000 cryptocurrencies in existence and counting. On the one hand, crypto trading opens up huge opportunities. On the other hand, such a wide variety can...

The Basics of Forex Trading

Forex trading has been around since the 1970s but with the advancement of technology, and the advent of online trading platforms across the years, its popularity has been growing exponentially...

Dollar-Cost Averaging: The Strategic Method to Strengthen Your Portfolio

Imagine the routine process of fueling your car. If you consistently refuel your tank every week, you'll average out the cost when gas prices rise and fall throughout the year...

MetaTrader4 vs. MetaTrader5

A trading platform is basically a workspace for traders, their work environment. The quality of trading depends on its functionality and convenience. Many market...

Online Forex Trading: A Beginner's Guide

The foreign exchange market, also called forex and even FX for short, is the world's most liquid and highly traded market in the world. The market solely trades...

Why Choosing The Right Broker Is Critical

Forex trading is an equal opportunity vertical. There are no exams, no prerequisites, no prior experience needed to start trading. All you have to possess...

Litecoin Trading: A Brief Guide for Beginners

Litecoin (LTC) is one of the oldest and most popular cryptos on the market. It is often called "digital silver to Bitcoin’s gold", and for good reason. On the technical side, both cryptos...

Cent and standard accounts: differences and similarities

Trading on the Forex market always starts with creating a trading account. At FBS, this process is simple: you choose an account to your liking, register, and verify it...

XM information and reviews
XM
82%
FP Markets information and reviews
FP Markets
81%
FXTM information and reviews
FXTM
80%
AMarkets information and reviews
AMarkets
79%
Octa information and reviews
Octa
79%
BlackBull information and reviews
BlackBull
78%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.