The most notable moves were in FX pairs containing sterling, because of the Brexit vote. But the uncertainty that sprung from the surprise result, sent shockwaves through the global financial markets.
The immediate aftershocks of the Brexit referendum have faded somewhat, but other factors still affect the FX markets. Speculation on the timing of further Fed rate hikes and long-term fears of economic weakness, have fuelled uncertainty.
This article answers that question and explores the topic of forex currency volatility as a whole. But before we start, we need to be clear on what volatility is, how we will classify volatile currency pairs and how to adjust volatility protection settings. Of course, you can also check present market movements anytime and in real time on a demo account. When we talk volatility, we are discussing how much a price moves over a certain period of time.
In short, a more volatile market will move more over a given timeframe than a less volatile one. There are different ways to measure volatility, but one of the best-known indicators for this purpose is Average True Range ATR.
The ATR indicator was developed by J. Welles Wilder along with a collection of other well-known methods , in his book New concepts in technical trading. In the commodity market, there is normally a stretch of time between the market closing and reopening. Well if we focus purely on the high-low range, we are ignoring a certain amount of movement when the market gaps on open.
True range is a measure that accounts for this circumstance and is the largest of the following:. Where volatility is concerned, we are only interested in the magnitude of change - not its direction. ATR is an exponential moving average MA of true range. In my opinion, these are the three most volatile currency pairs from late August to early September The results suggest that the outcome of the Brexit referendum is still having an impact on volatility, with regard to GBP.
We do this to make an educated guess about what may be likely for the market in future. Naturally, you are probably now wondering if there is a way to forewarn yourself about likely times of higher volatility. One tool that traders use, is the Economic Calendar. If so, try our guide on the best days per week to trade Forex.
For example, you can use your volatility measure to try and normalise the level of risk you take with each trade. This involves adjusting your trading size, so that it's appropriate to the market's volatility. It stands to reason that your chance of winning or losing, is the same for each position you have right?
This could happen if a loss occurs on a more volatile currency pair, when you haven't adjusted your size accordingly. The usefulness of volatility doesn't stop there - it can also help you choose a market that best suits your trading style. If you are a long-term trend follower, you are probably going to want to trade a less volatile currency. Whipsawing prices will ensure there are times when at least some of your profit will evaporate. On the other hand, if you are a Swing Trader then you probably want more volatile pairs.
Though it wasn't in the top tier of our list of high volatility currency pairs, you can still see how volatile the FX pair was in this period. The long red candle in the middle is for 24 June , when the market reacted to the outcome of the Brexit vote. Knowledge of a market's volatility, can help to inform your decision on all four of the above - so it's important.
As we said earlier in the article, measuring volatility is dependent on the time frame you are focussing on. What time frame yields the most useful information, will likely depend on what type of trader you are. You will be able to work out what works best for you, through a process of trial and error that's best served via a demo trading account. We hope this discussion of the most volatile currency pairs, will help you add another dimension to your trading. Getting to grips with the most volatile currency pairs.
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