Forex for a trader
Forex trading volatility

Forex trading volatilityHow to Measure Volatility. Volatility is something that we can use when looking for good breakout trade opportunities. Volatility measures the overall price fluctuations over a certain time and this information can be used to detect potential breakouts. There are a few indicators that can help you gauge a pair’s current volatility. Moving averages are probably the most common indicator used by forex traders and although it is a simple tool, it provides invaluable data. Simply put, moving averages measures the average movement of the market for an X amount of time, where X is whatever you want it to be. There are other types of moving averages such as exponential and weighted, but for the purpose of this lesson we won’t go too much in detail on them. For more information on moving averages or if you just need to refresh yourself on them, check out our lesson on moving averages. Bollinger bands are excellent tools for measuring volatility because that is exactly what it was designed to do. Bollinger bands are basically 2 lines that are plotted 2 standard deviations above and below a moving average for an X amount of time, where X is whatever you want it to be. One line would be plotted +2 standard deviations above it and the other line would be plotted -2 standard deviations below. When the bands c ontract , it tells us that volatility is LOW. When the bands widen , it tells us that volatility is HIGH. For a more thorough explanation, check out our Bollinger bands lesson.

3. Average True Range (ATR) Last on the list is the Average True Range , also known as ATR. The ATR is an excellent tool for measuring volatility because it tells us the average trading range of the market for X amount of time, where X is whatever you want it to be. So if you set ATR to 20 on a daily chart, it would show you the average trading range for the past 20 days. When ATR is falling , it is an indication that volatility is decreasing. When ATR is rising, it is an indication that volatility has been on the rise. Currency Volatility Chart. See the currency pairs with the most significant price fluctuations. The following graphs provide a simplified overview of recent price activity for different currency pairs and commodities. The Price Movement graph shows the extent and direction of price movement since the beginning of selected time period until current time. The High-Low Movement graph shows the extent of price fluctuation between the high and low prices during the same time period. This value is always positive and can be used as a simple measure of market volatility for the selected currency pair or commodity. Note: Not all instruments (metals and CFDs in particular) are available in all regions. How to use this graph. Contracts for Difference (CFDs) or Precious Metals are NOT available to residents of the United States. This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA.

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OANDA Asia Pacific Pte Ltd (Co. Reg. No 200704926K) holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore and is also licenced by the International Enterprise Singapore. OANDA Australia Pty Ltd is regulated by the Australian Securities and Investments Commission ASIC (ABN 26 152 088 349, AFSL No. 412981) and is the issuer of the products andor services on this website. It's important for you to consider the current Financial Service Guide (FSG), Product Disclosure Statement ('PDS'), Account Terms and any other relevant OANDA documents before making any financial investment decisions. These documents can be found here. OANDA Japan Co., Ltd. First Type I Financial Instruments Business Director of the Kanto Local Financial Bureau (Kin-sho) No. 2137 Institute Financial Futures Association subscriber number 1571. Forex Liquidity And Volatility. You’ll often hear it said that the forex market is the most liquid financial market in the world, and it is. But what does that mean for you and your trading? Liquidity refers to how active a market is. It is determined by how many traders are actively trading and the total volume they’re trading. One reason the foreign exchange market is so liquid is because it is tradable 24 hours a day during weekdays. It is also a very deep market, with nearly $6 trillion turnover each day. Although liquidity fluctuates as financial centres around the world open and close throughout the day, there are usually relatively high volumes of forex trading going on all the time. There are usually relatively ? high volumes of forex trading going on all the time. Volatility is the measure of how drastically a market’s prices change. A market’s liquidity has a big impact on how volatile the market’s prices are. Lower liquidity usually results in a more volatile market and cause prices to change drastically; higher liquidity usually creates a less volatile market in which prices don’t fluctuate as drastically.

Liquid markets such as forex tend to move in smaller increments because their high liquidity results in lower volatility. More traders trading at the same time usually results in the price making small movements up and down. However, drastic and sudden movements are also possible in the forex market. Since currencies are affected by so many political, economical, and social events, there are many occurrences that cause prices to become volatile. Traders should be mindful of current events and keep up on financial news in order to find potential profit and to better avoid potential loss. The volatility calculated on this page is called Average true range (ATR). It is calculated by taking the average of the difference between the highest and the lowest of each day over a given period. For example, with this method, let's calculate the volatility of the Euro dollar over three days with the following data. First day: The Euro Dollar marks a low point at 1.3050 and a high point at 1.3300 Second day: EURUSD varies between 1.3100 and 1.3300 Third day: the low point is 1.3200 and the high point is 1.3350. The Highest - Lowest difference over the three days is 250pips, 200pips and 150pips, or an average of 200pips. We will say that the volatility over the period is 200 pips on average. The volatility is used to evaluate the potential for variation of a currency pair. For example, for intraday trading, it may appear more interesting to choose a pair which offers high volatility. Another use may be as an aid to fix the levels of objective or stop-loss, to place an intraday objective at 2 or 3 times the volatility may be a risky strategy; conversely, one may estimate that an objective of at least one times the volatility has more chance of being achieved.

I wish to buy the Euro Dollar for an intraday trade at 1.3200. My objective is 100 pips. At the time when I want to open my trade, the low point for the day was 1.3100 and the average volatility is 150 pips, which means that on average one can estimate that the high point could be close to 1.3100+150 pips = 1.3250. Now my objective is 1.3300, or 50 pips above. In this case, my analysis shows that the EURUSD seems likely to have a stronger variation than on the previous days; I can open my position and maintain as my intraday objective 1.3300. However, if the rate shows no exceptional variation one may estimate that the objective will probably not be achieved during the day, which does not invalidate my analysis but defers my timing. How to Measure Volatility in the Forex Market. How to Measure Volatility in the Forex Market. Measuring volatility in the Forex market enables traders to know the overall turbulence associated with a particular currency pair so as to identify the most profitable trade opportunities.

An increase in the volatility of a currency pair in the foreign exchange market is usually due to major changes taking place in the economy of the country the currency represents. Here are three indicators for measuring the volatility of a currency pair. Video: How to Measure Volatility in the Forex Market. Sign up for a Live Trading Session Here. 1. The Average True Range (ATR) The Average True Range or ATR in general calculates the range of a session in pips and then establishes the average of that range over a particular number of sessions. For example, if the ATR is set to 15 on a daily chart, it would give the average trading range for the previous 15 days. As such, this indicator gives the present reading on the volatility of a particular currency pair. When the indicator is falling , it signifies that the volatility of the pair is reducing , and when it is rising , it signifies that the volatility of the pair is increasing . It is important to note that this volatility forex indicator does not offer an inference for the direction of price trend; however, it basically gauges the level of price volatility, from high – low for the day. 2. Bollinger Bands. Bollinger bands are an exceptional indicator at showing volatility. In general, these bands are two lines drawn two standard deviations above and below a moving average for a K amount of time (with K representing any figure you choose). For example, if it is set at 30, there would be a 30 Simple Moving Average and two lines in which one line would be drawn +3 standard deviations above it and another line -3 standard deviations below it. The bands are very dynamic in nature and they automatically contract when volatility is low and widen when volatility is high.

3. Moving Averages. Another crucial volatility forex indicator — and arguably one of the oldest — is the moving average. In general, moving averages are lines drawn on charts to give the average price at a given point over a definite period of time such as minutes, hours, days, or weeks. For example, if a 30 Simple moving average is plotted on a daily chart; it would give the average movement of the market for the past 30 days. There are different kinds of averages, however. The major types most used by traders are: Moving Average Convergence Divergence (MACD) , Exponential Moving Average (EMA) and Simple Moving Average (SMA) . To learn more (a lot more) about moving averages check out this blog post . All of these averages perform similar functions and because of that, all of the averages turn out to be pretty much similar. The function they perform is to eliminate or minimize the noise that is related to the day-to-day price movements and the alluring forex trends along with whatever is plotted on the charts. We are the easy social team. Follow us on Twitter, Facebook, G+, YouTube & Linkedin for more great articles, videos, contests, tips, news and more! Volatility (in Forex trading) refers to the amount of uncertainty or risk involved with the size of changes in a currency exchange rate. A higher volatility means that an exchange rate can potentially be spread out over a larger range of values. High volatility means that the price of the currency can change dramatically over a short time period in either direction. On the other hand, a lower volatility would mean that an exchange rate does not fluctuate dramatically, but changes in value at a steady pace over a period of time.

Commonly, the higher the volatility, the riskier the trading of the currency pair is. Technically, the term “Volatility” most frequently refers to the standard deviation of the change in value of a financial instrument over a specific time period. It is often used to quantify (describe in numbers) the risk of the currency pair over that time period. Volatility is typically expressed in yearly terms, and it may either be an absolute number ($0.3000) or a fraction of the initial value (8.2%). In general, volatility refers to the degree of unpredictable change over time of a certain currency pair exchange rate. It reflects the degree of risk faced by someone with exposure to that currency pair. Forex volatility for market players. Volatility is often viewed as a negative in that it represents uncertainty and risk. However, higher volatility usually makes Forex trading more attractive to the market players. The possibility for profiting in volatile markets is a major consideration for day traders, and is in contrast to the long term investors’ view of buy and hold. Volatility does not imply direction. It just describes the level of fluctuations (moves) of an exchange rate. A currency pair that is more volatile is likely to increase or decrease in value more than one that is less volatile. For example, a common “conservative” investment, like in savings account, has low volatility.

It will not lose 30% in a year but neither will it profit 30%. Volatility over time. Volatility of a currency pair changes over time. There are some periods when prices go up and down quickly (high volatility), while during other times they might not seem to move at all (low volatility). easyMarkets offers trading the USD Volatility index. How Forex News Affects Forex Volatility. With its almost six trillion dollars daily turnover, the Forex market depends on Forex news to move. For this reason, Forex volatility and Forex news enjoy a direct relationship. Most of Forex news comes from the economic sphere. Job-related data, changes in the size of an economy, inflation, etc., offer traders clues about the economic performance of a region or country. Traders put the economic news together to find out the shape of an economy. Thus, the shape of a currency. But, Forex trading means buying and selling currency pairs. Hence, traders compare to economies for every currency pair. It doesn’t mean Forex traders need an economic background.

Merely, it means looking at the major economies around the world, like: United States of America Eurozone Japan Australia Canada United Kingdom Switzerland, etc. Now imagine that each economy has a currency: S. Dollar (USD) Euro (EUR) Yen (JPY) Australian Dollar (AUD) Canadian Dollar (CAD) British Pound (GBP) Swiss Franc (CHF) If you combine the currencies two by two, you have the main currency pairs to trade. Hence, Forex news from those economies will increase Forex volatility. In this article, we’ll cover various aspects related to Forex market news, such as: Forex news that moves the USD What Forex news matter for the EUR and other currencies Forex volatility in different trading sessions Daily Forex news to watch How to interpret the Forex news calendar. Forex News that Moves the USD. Any discussion about Forex volatility and what causes it starts with the USD. As the world’s reserve currency, it influences the entire Forex dashboard like no other currency. Because of the dollar, the currency pairs form two categories: majors and crosses. Any major pair has the USD in its componence. Hence, a major don’t. Only by splitting the pairs in such a simple manner, traders can avoid Forex volatility surrounding critical economic events. For example, one way to prevent wild swings in the trading account is to trade cross pairs during American Forex news. After the Bretton Woods conference, the USD became the pillar of the world’s financial system. Moreover, the Nixon shock in 1970’s decoupled it from the gold standard. From that moment, it was only a matter of trust in the USD that kept foreign investors buying it. Nowadays, the USD is still the preferred choice when nations build foreign exchange reserves. This is an enormous privilege the USD enjoys, and other countries envy the USD status. Most Relevant US Forex Trading News. The Forex calendar news out of the United States is one of the busiest of them all. Because of the dollar’s role, every market depends on the shape of the US economy. Moreover, the Intermarket correlation means the dollar will move not only the Forex market but also other markets like bonds, stocks, options, and so on. Hence, it is all about interpreting the economic news.

For a currency, it is all about the interest rate level. Hence, the Federal Reserve interest rate announcement and press conferences move the dollar. And, the Forex market. The Fed meets every six weeks. On a Wednesday, right after the London’s close, the Fed releases the FOMC (Federal Open Market Committee) Statement. This is a text describing the monetary policy. Trading algorithms or robots scan the document with lightspeed and react. Quant firms and HFT (High-Frequency Trading) algorithms buy and sell based on differences between the previous FOMC text. Sometimes, even no change, is a signal for buying or selling. Once a quarter, or every two sessions, a press conference follows the FOMC statement.

Never has the Fed hiked or cut the federal funds rate without a press conference to follow. Therefore, the federal funds interest rate level is THE Forex news to watch. As a rule of thumb, the higher the interest rate goes, the stronger the dollar becomes. The Forex market volatility increases tremendously during the Fed presser. Press representatives from around the world ask questions. And, the ChairmanChairwoman answers. No one knows the questions. And, no one knows what the answer will be too. As such, the USD makes large swings all over the charts. Effectively, it trips stops both for longs and for shorts. CPI or Inflation to Mark in the Forex Calendar News. Inflation shows the change in the price of goods and services over a period of time. Typically, the inflation or Consumer Price Index (CPI) comes out monthly. It is one of the closely watched Forex news.

The market reaches extreme Forex volatility levels if the CPI deviates from the target. Traders know the Fed closely watches inflation. Part of its mandate, the Fed targets a two percent level for the CPI. However, it doesn’t look at the regular CPI. Instead, it considers the Core CPI. Or, inflation without transportation, energy and food costs. The standard interpretation is that when inflation falls, the currency depreciates. How come? When inflation is in the fall, expectations grow that the Fed will ease the monetary policy. Or, it’ll cut rates. Because there’s a lag between the two Forex news, traders react on the spot. After all, trading is a game of expectations. Right? As a Forex volatility indicator, inflation doesn’t “damage” the charts as when the Fed changes the rates. However, if deviates strongly, the Forex volatility spikes as traders bet the Fed will react. Forex News Trading – Jobs Data. The other side of the Fed’s mandate refers to jobs. Fed vows to create jobs.

Thus, it’ll change the federal funds rate level accordingly. As such, jobs-related data like: NFP – Non-Farm Payrolls ADP – private payrolls Jobless claims The unemployment rate, etc. are Forex volatility news to mark in the economic calendar. There is a direct relationship between job creation and the USD reaction. Hence, when the U. S. economy creates more jobs than expected, the USD rises. And, the opposite happens when it doesn’t. Out of all jobs data, the NFP is a great Forex volatility indicator. Released every first Friday of any month, the market keeps a tight range. Moreover, the Forex market prepares in advance for the NFP reading. Sometimes, for more than a week. But the Forex volatility surrounding the release doesn’t depend only on the actual NFP number. Instead, most of the times the labor department releases revisions for previous data.

Sometimes, those revisions dwarf the current NFP Forex news. As such, the initial market reaction may dissipate quickly when revisions exist. Another Forex News that Matters for the USD. Throughout the six weeks between two Fed meetings, the Forex news feed is full of economic releases. They come from all areas: The three sectors make the GDP (Gross Domestic Product) and help estimate the size of it. Or, the size of economic expansion or contraction. Based on the data in each sector, traders estimate the economic evolution. And, its impact on the Fed’s interest rate decision. Again, because there’s plenty of time between the economic releases, traders will respond on the spot. They’ll prepare for the Fed statement and decision by selling or buying the USD in advance. Out of the three sectors, the services data creates the most Forex volatility. Obviously, the reason is the U. S. economy is a service-based one. Or, the services sector sits at the core of the U. S. economy. When the pillar suffers, the contagion spreads rapidly. Forex news to watch from the three sectors: ISM Manufacturing and Non-Manufacturing a survey showing the state of the manufacturing and services sector Retail Sales shows the consumer’s health Average Hourly Earnings an early indication for inflation’s evolution Personal Spending and Personal Income shows the disposable income’s evolution Existing Homes Sales shows the health of the housing sector Building Permits helps to estimate the future projects in the housing sector. These are only some of the Forex news to consider. While second-tier data, the market reacts sending the Forex volatility to extreme levels if the actual differs from the forecast.

Forex Volatility Created by another Forex News in the World. While everything in Forex trading depends on the USD, some other news around the world makes the currency market moving. Keep in mind that a currency’s value depends on the counterpart currency. For example, if you say that the USD is 1.27, that’s irrelevant. A correct statement says the USD is worth 1.27 CAD. As such, there’s another currency to judge. Hence, another economy to interpret. When Forex news out of Canada comes out, the CAD may strengthen. As a reaction, the USDCAD tumbles, without the USD having anything to do with it. Just that the valuation changed. European Forex News to Consider. The Eurozone economies form the second largest economic block in the world. Thus, the Euro’s role in creating Forex volatility shouldn’t be ignored.

Despite the general belief, in Europe only a few events matter: European Central Bank (ECB) interest rate decision and press conference every six weeks the ECB announces the interest rate level and holds a press conference after each meeting inflation released monthly, it holds the key for the future ECB moves PMI’s (Purchasing Managers Index) a survey, the equivalent of the ISM in the United States. The Forex volatility surrounding the ECB reaches extreme levels. Sometimes, without the ECB President saying nothing new, the market shoots higher or lower, breaking essential levels. The United Kingdom and Australian Economic Data. Even though the two economies are far away from one another, there are many similarities between the two. One, for example, is the fact that back in time the Australian Dollar was, in fact, the Australian Pound. Besides the two central banks’ meetings (Bank of England and Reserve Bank of Australia), the two currencies react to: Both Australia and the U. K. release the PMI Construction, analyzing the construction sector carefully. The Pound and the Aussie Dollar are popular currencies. Regarding Forex volatility, the GBP pairs reach extreme levels easier than Aussie pairs. As a particularity, the AUD is a commodity currency.

Hence, anything from the gold and other precious metals news makes the AUD moving. Different Economies to Watch Too. Japan faces a terrible crisis. For decades, there’s no inflation. Because of the aging population and cultural problems (e. g., difficult to immigrate to Japan), Japan is a closed society. It makes it difficult to rely on external sources. All progress must come from within. Bank of Japan was the first central bank to tap uncharted territory in monetary policy. It bought Japanese government bonds of unprecedented size, and in vain. Two events from Japan create Forex volatility: Bank of Japan (BOJ) monetary policy shifts Tankan report. The later is a comprehensive report about the entire Japanese economy.

When gloomy, the JPY tanks. SNB and Forex Volatility. The Swiss National Bank (SNB) made Forex volatility charts experience new levels. In 2015, the SNB dropped the EURCHF peg. For years, the bank held the cross at an artificial rate. It promised to buy and maintain the level, no matter what. However, 2015 proved too tricky. The ECB prepared to launch its quantitative easing, making it impossible for the SNB to hold the peg. Faced with massive losses, the SNB gave up and lost tens of billions on the move. As history tells us now, it recovered all the losses and some more. But, in those days, the SNB action created mayhem on the currency market. This is just another proof that Forex news doesn’t have to come from the Forex news calendar.

Instead, a groundbreaking decision changes everything. Forex Volatility in Different Trading Sessions. Forex trading goes around the sun. It starts with Asia, Europe, and ends in America. Rinse and repeat. The biggest financial center in the world, London, takes the central stage. Now that Brexit became a reality, things may change. However, the London sessions stand out as the one where Forex volatility is on the rise. Next, the United States session follows. Because there are some hours where trading goes on both sessions, Forex volatility is at its peak. That’s especially true at the so-called fixing times when the clearing houses buy and sell and most of the options expire. After the fixing and London close, the North American session loses steam. That is, if no Forex news comes later, like the Fed interest rate decision or the FOMC Minutes.

Daily Forex News to Watch. The term Forex news doesn’t refer only to economic news. Instead, it consists of all news with the potential to influence the currency market. Therefore, the Forex calendar news contains other events like: Central bankers’ speeches Fed Chair semi-annual testimony in front of the U. S Senate ECB President’s testimony in front of the European Parliament Presidential elections, referendums, etc. Political summits. They all move markets, together with the news that come from unexpected places like: Natural catastrophes Wars Economic wars (g., imposing tariffs) Geopolitical events G7, G20 meetings, etc. As probably is obvious, Forex volatility depends on more than the classic economic events. You’ll never know what happens next, and how the markets will react to it. Perhaps this is one of the reasons why so many retail traders find this market so attractive. The Forex market is like an entity that changes continuously. In a way, it is only reasonable. Almost a decade ago, the execution of a trading order took longer than today. Even the trading accounts for the retail trader were different. To have an idea, the spread for the most popular pair, the EURUSD, had three pips.

Three full pips! Nowadays, event 0.2 or 0.3 exists. Thus, it means the market changed together with new technologies. Forex volatility changed too. It is hard to tell if for the worse or for, the better. When Forex volatility is on the rise, retail traders blame the High-Frequency Trading (HFT) industry. The robots are responsible! What can we do? When volatility misses, whose to blame? You guessed: still, the HFT industry, as the super-computers buy and sell so fast as levels barely move. There’s always supply and demand of almost equal sizes.

Forex news is a big driver for volatility too. As explained here, only the prospect of a bit economic decision is enough to make markets still. Forex traders should be prepared for anything. Despite having a stop loss in place, there’s no total protection for a trading account. Macroeconomic trends became so crucial that currencies react the first to changes. News from parts of the world far away (e. g., North Korea launching missiles) make markets tremble. First, the stock market reacts. If the news is negative, it’ll tumble. Second, when the stock market closes, the futures market takes it from there. And so on. Like a snowball, it’ll roll over, and the effect appears on the Forex market too. First, the JPY, and then the other risk onrisk off pairs. To sum up, every piece of economic, political, etc. data, is Forex news. Because high-impact Forex news leads to higher Forex volatility levels, it is part of a trader’s job to trade the news too. GET STARTED WITH THE FOREX TRADING ACADEMY. Damyan is a fresh MSc International Management from the International University of Monaco. During his bachelor and master programs, Damyan has been working in the area of financial markets as a Market Analyst and Forex Writer. He is the author of thousands of educational and analytical articles for traders.

When being in bachelor school, he represented his university in the National Forex Trading Competition for students in Bulgaria and got the first place among 500 other traders. He was awarded a cup and a certificate at an official ceremony in his university. How to Measure Volatility in the Forex Market. How to Measure Volatility in the Forex Market. Measuring volatility in the Forex market enables traders to know the overall turbulence associated with a particular currency pair so as to identify the most profitable trade opportunities. An increase in the volatility of a currency pair in the foreign exchange market is usually due to major changes taking place in the economy of the country the currency represents. Here are three indicators for measuring the volatility of a currency pair. Video: How to Measure Volatility in the Forex Market. Sign up for a Live Trading Session Here. 1. The Average True Range (ATR) The Average True Range or ATR in general calculates the range of a session in pips and then establishes the average of that range over a particular number of sessions.

For example, if the ATR is set to 15 on a daily chart, it would give the average trading range for the previous 15 days. As such, this indicator gives the present reading on the volatility of a particular currency pair. When the indicator is falling , it signifies that the volatility of the pair is reducing , and when it is rising , it signifies that the volatility of the pair is increasing . It is important to note that this volatility forex indicator does not offer an inference for the direction of price trend; however, it basically gauges the level of price volatility, from high – low for the day. 2. Bollinger Bands. Bollinger bands are an exceptional indicator at showing volatility. In general, these bands are two lines drawn two standard deviations above and below a moving average for a K amount of time (with K representing any figure you choose). For example, if it is set at 30, there would be a 30 Simple Moving Average and two lines in which one line would be drawn +3 standard deviations above it and another line -3 standard deviations below it. The bands are very dynamic in nature and they automatically contract when volatility is low and widen when volatility is high. 3. Moving Averages. Another crucial volatility forex indicator — and arguably one of the oldest — is the moving average. In general, moving averages are lines drawn on charts to give the average price at a given point over a definite period of time such as minutes, hours, days, or weeks. For example, if a 30 Simple moving average is plotted on a daily chart; it would give the average movement of the market for the past 30 days. There are different kinds of averages, however.

The major types most used by traders are: Moving Average Convergence Divergence (MACD) , Exponential Moving Average (EMA) and Simple Moving Average (SMA) . To learn more (a lot more) about moving averages check out this blog post . All of these averages perform similar functions and because of that, all of the averages turn out to be pretty much similar. The function they perform is to eliminate or minimize the noise that is related to the day-to-day price movements and the alluring forex trends along with whatever is plotted on the charts. EURUSD Volatility Refuses Trend, Risk Remains Uneven, Gold and Oil Drop. by John Kicklighter , Chief Currency Strategist. Fundamental analysis and market themes. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly.

You are subscribed to John Kicklighter. You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. The swell of volatility for EURUSD this past week between the ECB and Fed decisions couldn't evolve into trend Risk trends remains the most prominent fundamental theme moving forward but monetary policy and trade wars are effective means Targeted event risk can provide anticipated charge for the Euro, Pound and Kiwi Dollar; but mind the themes. See how retail traders are positioning in EURUSD, other key Dollar pairs and global equity indices as monetary policy adds to concern already stoked by trade wars. Find speculative positioning on the DailyFX sentiment page . Risk Trends End the Week Without Clear Commitment. If you wanted to, you could point to some impressive and troubling signals among the benchmarks for speculative sentiment. For risk appetite, the tech-heavy Nasdaq Composite closed just off its record high and the junk bond ETF extended its upswing.

Presenting the opposite signal for the financial system, the China's Shanghai Composite and the EEM Emerging Market ETF both threatened broader technical breakdowns. Other measures well-suited for speculative signaling better reflected the mixed sentiment across the financial system. We don't have a commitment to revive a years-long speculative reach nor the fear necessary to sustain its unwind. Yet, the longer the deep fundamental themes continue to challenge stretched values, the more likely we come to the inevitable speculative reckoning. A general atrophy in forecasts for growth and capital circulation ultimately pressure our current course, but more pressing risks in trade wars and the return to monetary policy will more likely awaken dormant fears. ECB and Fed Stir EURUSD and Speculative Sentiment. The top event risk this past week were the monetary policy decisions from the Federal Reserve and the European Central Bank. Both managed to incite volatility from their respective currencies, but they would also charge the monetary policy theme as an underappreciated systemic theme for market-wide sentiment. The Fed's decision to hike rates and upgrade its 2018 and 2019 forecasted pace of tightening offered a modest Dollar bid, but ultimately catered to an already appreciable advantage the currency enjoyed.

For short-term impact the ECB's extension of its QE program earned a more dramatic Euro response as it thwarted aggressive speculation of an eventual turn bearing. Yet, in both instances, the drive was short-lived for the FX target. For EURUSD, the pair noticeably held the line at a range low that has been in place for months and the heavily weighted DXY Dollar Index stalled at its respective resistance. The more systemic influence to arise from these two events is the contrast in global policy. The risk of the Fed far outpacing all its counterparts and test stability founded on complacency while the ECB finds itself late to the game of normalizing when the outlook grows increasingly uncertain. This quandary has not be resolved in the closing hours of this past week, so expect to see its repercussions in the Dollar and Euro as well as the capital markets over the week ahead. BoE Rate Decision and the ECB's Sintra Policy Forum. There is plenty of unresolved speculation in monetary policy from the past few weeks to carry speculation forward, but the week ahead is loaded with its own particular catalysts in this particular fundamental venue. For discrete event risk, the Swiss National Bank (SNB) rate decision will once again act as the moral lesson for what can happen when a policy authority loses credibility; but the Bank of England (BoE) meet will tap into explicit speculation. While the probability of a hike at this meeting is considered very low according to rates markets, the anticipation of a hike sometime in 2018 remains. This will put the focus on the statement that accompanies the likely decision to hold and Governor Carney's Mansion House speech scheduled later in the day Thursday.

Though not as easy to judge for its hawkishdovish impact, the ECB's monetary policy forum in Sintra scheduled for Monday through Wednesday represents an important gathering on a theme that can readily redefine the global markets and economy if poorly directed. In particular, Wednesday's panel with Fed Chair Powell, ECB President Draghi, BoJ Governor Kuroda and RBA Governor Lowe will represent a critical picture of the landscape. Event Risk for Volatility and Commodities' Week Ending Collapse. While high profile themes carry the greatest potency for establishing and sustaining trends, there is plenty of event risk better suited for short-term volatility. Such opportunities should not be overlooked as range trading is more appropriate in general until it is clear that the broader market has thrown commitment to a systemic sense of sentiment. In particular, the New Zealand Dollar deserves highlight. The 1Q current account balance is particularly important for this export-dependent economy, but it is the GDP reading for the same period that will have the final say on volatility. A reading that can alter the expected RBNZ's course would be the most effective in triggering a meaningful Kiwi move. Meanwhile, in the commodities market, Friday's plummet from crude oil and gold - two investor favorites from the asset class - will have investors from many corners of the market keeping track of intent through the opening 48 hours of trade. Crude's sharp drop after days of tepid advance seems more a swing in activity extreme rather than true conviction. That is even more likely given the focus on OPEC amid US pressure for output and news that China would raise tariffs on US energy imports. Gold's drop was even more explicit in its reflection of a rebalance in volatility. From the lowest level of activity (measured by the 20-day ATR) in 18 years to a dramatic tumble, this is a move that requires something systemic such as collective monetary policy to sustain.

We discuss all of this and more in this weekend Trading Video. If you want to download my Manic-Crisis calendar, you can find the updated file here . DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. How to Use Forex Volatility Statistics. It’s possible to track how much a currency pair moves on average each day, how much it moves each day of the week, and even how much it moves each hour. This information, which is readily accessible, aids traders in making better trading decisions, such as when to enter and exit trades, and where to set profit targets. Wouldn’t it be nice to know if the EURUSD is likely to move 60 pips today, or 90, or 120? While we can’t know for sure what a currency pair will do on a given day, we can use averages to give ourselves a good idea. Forex volatility statistics provide this for us. We can see how much a currency moves on average each day, how much it tends to move each day of the week, and how much a currency pair tends to move each hour. For reasons we will discuss below, there are significant benefits to having and tracking this information on a regular basis. Mataf provides easy to understand volatility charts. Oanda provides a Value At Risk calculator, which can also be used to estimate volatility over different time frames. The figure below shows multiple currency pairs. The columns along the left show various currency pairs along with a small graph with the recent price trend.

The column we care about the most is the one called “pips”. This is how many pips the currency moves, on average, in a 24-hour period. By default the average is calculated based on the last 10 weeks of price data. This can be altered by putting in a different amount of time, such as 5 weeks, or 20 weeks in the Formula box and then clicking the refresh button next to it. Source: mataf. net Nov. 1, 2017 – Click to enlarge. Click on a currency pair to bring more detailed data. In the figure above the EURCAD pair has been selected, which brings up additional charts on hourly volatility and day of the week volatility. While the “pips” column gives the average of how much a pair moves each day, certain weekdays tend to be more volatile than others. In the example above, the EURCAD has average daily movement of 114.84 pips, but Monday (1) and especially Tuesday (2) tend to have volatility lower than the average. Wednesday (3) and Friday (5) tend to have volatility above average. Thursday (4) is close to average.

Within each day, certain hours are more volatile than others. The hourly chart is set to the GMT time zone. The current hour and day when you view these charts, on Mataf, are always marked in yellow. In this way, you can make a quick time conversion if needed. For day trading, consider trading during the times of day where there is increased volatility, and avoid day trading during the hours when volatility is really low. Please note that this is a snapshot in time, and these statistics will constantly change. The hours that are most volatile tend to stay the same, but how much the price moves during these hours will change. Which weekdays are most volatile also tend to stay the same, but could change over time as well. When you click on a currency pair on the Mataf volatility statistics you will also see a third chart. This chart shows volatility over the last several years. This is useful for assessing overall market conditions. For example, you may have had a phenomenal year day trading or swing trading last year, but then over time you start struggling. It could be a change in volatility. The chart below shows the long-term daily volatility in the EURUSD.

Back in 2010, 2011 and 2015, the EURUSD was moving more than 140 pips. That makes it a little easier to jump into strong trends. In 2014, 2016 and 2017, volatility was largely below 100 pips per day on average. Do you think a 40% or more change in volatility could affect your trading? It will, meaning we need to adjust for such changes. Source: mataf. net Nov. 1, 2017. Ways to use Forex Volatility Stats. There are multiple ways to use forex volatility statistics.

Some of those ways are discussed below. –Changes in volatility can be used to confirm changes in direction, or point to an acceleration of the trend. Sharp moves to me are more important than a meandering price which has little force behind it. For more on this topic, see Velocity and Magnitude. –Volatility is often associated with a change in the direction. Trends are often complacent, reversals are not. Therefore, heightened volatility is usually seen during corrections within trends and in trend reversals. –While a pair moves a certain number of pips in 24 hours, it will move less during the specific hours we are trading (since we can’t trade all day). For instance, the EURUSD may move 120 pips per day, but only move 85 pips during the US session, or 75 pips during the European session. If the daily figure is used, but we are only day trading for a few hours each day, the statistic could be very misleading. If day trading, be aware of the specific stats for the time of day you are trading. See Best Time of Day to Day Trade Forex for more details.

–During a trend volatility is often steady or will decline. If the trend accelerates we will see a rise in volatility. This can be a confirmation or a signal the market is nearing a turning point (a very powerful volatility thrust after a long-term trend is called a “blow off”), but it depends of the maturity of trend. An example of a trend accelerating in a “blow off” fashion, which led to a big trend reversal, is the USDCHF in August of 2011. –Changing the number of weeks that are averaged on the volatility study may greatly affect the data provided. If you are a short-term trader, track volatility statistics based on the last 3 weeks or less. Longer-term traders can benefit from looking at volatility averaged over the longer term (default is 10 weeks). All traders will want to monitor volatility over time, as this may provide insight into reasons for improved or lack-luster trading performance. –Intraday volatility, which is the number of pips a currency pair moves in day, provides a lot of information about where to place profit targets and when to enter trades. If you wish to exit a position today, the chances of an order filling well beyond the daily average range are slim, unless there is a significant news event occurring. Say the EURUSD already moved 100 pips today (distance between high and low), and average movement is only 80 pips for the weekday you are trading (subject to change). If you buy near the high, expecting the price to go even higher, you are going against the statistical odds. Buying near the high and placing a target 20 pips above means the price will have to move 120 pips that day…well beyond the average of 80. While it could happen, it’s not a high probability trade.

Same with taking a trade near the low of day, in this case, and expecting the price to drop even more. If the price has already moved beyond what it typically moves in a day (and there is no major news that is driving the increased volatility), it’s a low probability trade to expect the price to keep expanding its range a lot more. That said, an average is just an average. It is not a crystal ball. Any particular day may be more or less volatile than the average indicates. Intraday volatility should be on a day trader’s radar, but it is not the only factor to consider. –Volatility lets us know when to trade, and when not to. Day traders are especially susceptible to the cost of paying the spread, and when volatility drops so does profit potential. Less volatility, and reduced profit potential, makes the spread more expensive. Therefore, short-term traders usually benefit by NOT trading when volatility is very low. –Certain days of the week provide greater opportunity. Certain hours of the day are more volatile than others. Stick to the day and times that offer you the greatest opportunity. This may vary depending on your strategy. –If your trades last more than a week, the daily data provided by Mataf may be overkill…

you simply don’t need that much data. Apply an Average True Range (ATR) indicator to your charts, and this will likely provide you with all the volatility information you need. –If using an ATR, you can change the time frame of your chart from daily to weekly. On a weekly chart, the ATR will show how much that currency pair typically moves over a one-week period. –Volatility is always changing. Monitor changes in volatility, especially if your strategies are sensitive (most are) to these changes. Final Word on Forex Volatility Stats. This is a brief introduction on how to use forex volatility statistics. Traders are encouraged to educate themselves further on volatility and statistics. Refer to the Daily Forex Stats page for forex volatility resources, as well as other trading statistics such as correlation. You may find that being aware of volatility helps you control risk, find alternative trading strategies and alert you to potential dangers or opportunities. By Cory Mitchell, CMT. Check out my Forex Trading Strategies Guide for Day and Swing Traders eBook.

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