Monday, July 7, 2014

Forex Volatility Indicators

Volatility indicators show the size and the magnitude of price fluctuations.
In any market there are periods of high volatility (high intensity) and low volatility (low intensity).

These periods come in waves: low volatility is replaced by increasing volatility, while after a period of high volatility there comes a period of low volatility and so on.

Volatility indicators measure the intensity of price fluctuations, providing an insight into the market activity level.

Forex Volatility Indicators:

- Average True Range (ATR)
- Bollinger Bands (BB)
- Chandelier Exit
- Bollinger Bands Width
- Chaikin Volatility (CHV)

The methodology of using Volatility indicators

Low volatility suggest a very little interest in the price, but at the same time it reminds that the market is resting before a new large move. Low volatility periods are used to set up the breakout trades. For example, when the bands of the Bollinger bands indicator squeeze tight, Forex traders anticipate an explosive breakout way outside the bands limit.

A rule of thumb is: a change in volatility leads to a change in price.
Another thing to remember about volatility is that while a low volatility can hold for an extended period of time, high volatility is not that durable and often disappears much sooner.


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