Forex Volatility Indicators

Knowing about the Forex Volatility Indicators

Forex Volatility IndicatorsAlmost every trading step in the forex market involves some logics and reasons that assist you in the further trading movements. There are certain tools and softwares that give you these signals and reasons of forex trading and are popularly referred to as indicators. In the same way, the volatile forex market needs to be observed and for this observation it requires some special indicators known as the forex volatility indicators. The size, price extent and their impact on forex trading are signaled by these indicators.

Every market comprises of the low & high volatility periods. The volatility periods form a wave pattern that moves in a continuous pattern i.e. from low volatility to high volatility and so on. The forex volatility indicators analyze the strength of price actions that gives you the basis to look into the trading system. If the result of the forex volatility indicators is low volatility extent that means the market is deficient of price actions & interests. This also means that currently market is taking rest but at the same time preparing itself for the next move in the forex.

It has been found that the change in the volatility o f forex trading is directly proportional to the change in the prices. The trading volatility given by the forex volatility indicators is based on the fact that the low volatility stays for a longer period of time as compared to the high volatility.

What is the methodology of using the forex volatility indicators?

The basic forex volatility indicators comprises of “average true range, Bollinger Band width & the Chaikin volatility“. Basically we have two methods for interpreting the extent of the market volatility.

  • According the first way, the peak point of the market is followed by increase in the variation while the low trades are followed by the decrease in variation.
  • Second method is the Chaikin method. According to this method the bullish market trend is introduced through the stability of the volatility in the market for a long period of time.

The rounding up of the trade similar to the disturbed selling-off currency is outlined when there is an increase in the forex volatility indicators for short span of time.

What are the ways of measuring the forex market through the forex volatility indicators?

  • One of the ways used by these indicators is to analyze the increase and decrease in the market prices on the daily basis. This means that bottom is near if wide gap is observed for a short period of time. Usually the rhythm of price peaks is slower and is represented by the narrowing of the price range.
  • A valid bottom is expected if the rise in the volatility line is above the reference line whereas if there is a decrease in the volatility line below the reference line then it represents an inevitable peak. It is recommended to use the trend and momentum indicators’ analyses along with the forex volatility indicators for the precise data to trade in the forex.

The forex volatility indicators are used to analyze the forex market that what is the current status of the market and how will be the market in the future. It also includes the analyses of the price fluctuations, and the intensity of the changes in prices. If the forex volatility indicators show the sharp changes in the price during a certain period of time that means the volatility periods are high whereas the small changes shows the low volatility periods.

Now let us put some spotlight on the forex volatility indicators that are used to determine the volatility of the market:

  • Bollinger Bands- it is the most commonly used type of the volatility indicators. It comprises of the upper and the lower band that used to calculate the volatility. Wider the bands higher the volatility of the market, closer the bands lower is the volatility.
  • Average true range indicator- as the name suggests, this type of forex volatility indicators give the average range of the market. The movement of this indicator indicates the volatility of the market; faster the movement higher the market volatility, slower the movement lesser will be the market volatility.
  • Chandelier volatility- the exit from the market on the basis of volatility is analyzed by the chandelier volatility indicators.

Volatility is used as the standard for the price changes in the forex market. Because of the high liquidity of the market you need the tool for the exact computation of the market. From the analyses it has been observed that forex volatility indicators are not completely precise but accurate upto 99%.

Next Indicators Guide: Volume Indicators