Volatility can be defined as a term that defines the range of movements in a given market
Volatility on Forex
Very often, in analyzes, you can read that the markets are hit by increased volatility or that volatility is very low and the market is gathering strength. What, but such phrases mean and how to work with them.
What does volatility mean?
Volatility can be defined as a term that defines the range of movements in a given market, technically it is a deviation of historical movements. If the volatility is high, you will see significant movements in one direction on the market, but the size of the candles increases. For increased volatility, care should be taken especially when working with stop-loss.
How do we measure volatility?
There are several tools to measure volatility. Perhaps the most famous of these is the VIX volatility index, which can be applied to the technical analysis and determine the possible development of the future in the future. VIX is based on the S & P500 index and assumes its volatility for another 30 days. You will also use it on Forex, especially for couples with US Dollar. Sometimes you see the VIX tag as an indicator of fear. Another tool you can use for volatility measurement is the average daily range or the average true range.
How to apply development on VIX?
The relationship between VIX and Forex market development is statistically the exact opposite, as volatility increases, markets tend to decline rather, volatility decreases, markets are generally growing. This is due to the empirical perception of stock markets, which, at the moment they grow, are considered safe and the bull trend they all consider to be normal. When stocks go out for sale, trading becomes panic. Technically, we can use VIX as a confirmatory trend indicator as well.
How does it look like VIX currently?
As seen on the VIX weekly chart, the highest was the index at the time of the financial crisis in 2010. Now VIX is holding at a below or average value of 15. For high volatility we can consider values above 30 points.