Price variations over a specific period of time- this is what defines market volatility. It is one crucial aspect which traders need to gauge before entering into a trade. To do it impeccably, 90% of traders make use of a reliable Forex volatility indicator. They do it to detect potential break-outs in a turbulent market as it is where their wins lie.
There are some really good options when it comes to volatility measuring tools. Continue reading if you want to get some know-hows about it.
3 Forex Volatile Instruments- A Few Good Ones!
1. Moving Average:
When it comes to measuring market volatility, Moving Average is one of the most popular tools around. It is also a name which many traders and experts suggest.
With this Moving Average, traders use it to calculate the market movement for a specific time span. Say you trade with EUR/USD and make use of 20 Day SMA; you will find a clear presentation of price movements on an average for the preceding 20 days or so.
Traders can make use of various types of Moving Averages namely
• Simple Moving Average
• Exponential Moving Average
• Moving Average Convergence Divergence
One superlative thing about all these MA indicators is that they work with any given currency pair, upon any time frame as well as a trading session.
2. Average True Range:
Another great option in regards to top FX market volatility measuring instrument is Average True Range. It aids to gauge True Range over a specific period of time.
It is also very simple in usage and even traders who have very little knowledge about it as well as the market can use it easily.
You trade with GBP/USD and use ATR for measuring the volatility of the current market. On installing it on your trading chart, you find that the ATR is falling gradually. This is a clear indication that the market volatility is falling. And vice-versa!
3. Bollinger Bands:
3rd in this list is Bollinger Bands, another top-notch Forex volatility indicator, traders new to this field can use.
When you are trading with EUR/USD trading and install Bollinger Bands on your trade chart, you need to follow 2 standard deviations. These lines lie over as well as below the Moving Average specific to a particular span of time.
Those standard deviation points are +2 and -2. The thing which you need to watch in close range is the bands contracting or widening. It the bands widens from +2 to -2 it means the existing market volatility is getting higher and vice-versa if it contracts.
These are some of the top-end Forex volatility indicators which even the experts present their stamp of approval.
Looking into the bigger picture or general scenario of the market is always beneficial for traders new and old. Large price movements always trigger off profitable trading opportunities.
These Forex volatility indicator names are surely going to help you determine how the market behaves. So quit wasting time, find a broker with an MT4 platform and start using it.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.