Volatility is a measure of the amount by which price fluctuates over a given period.
In forex trading, volatility measures how large the upswings and downswings are for a particular currency pair.
See Also
Why does Forex liquidity matter and how do you measure it?Types of liquidity - FasterCapitalHow to Identify and Trade Liquidity Grabs | FXOpenHow to find liquidity in forex strategyWhen a currency’s price fluctuates wildly up and down, it is said to have high volatility.
When a currency pair does not fluctuate as much, it is said to have low volatility.
It’s important to note how volatile a currency pair is before opening a trade.
Volatility should always be taken into consideration when choosing your position size and stop loss level.
Why Should You Care?
Well, whether you’re a newbie or a seasoned trader, understanding volatility can shape your trading adventures.
- It’s a Risk Radar: More volatility? More unpredictability. Knowing this can help you decide if you want to jump in or sit one out.
- Spotting Opportunities: Just as surfers love waves, traders love a bit of volatility—it can mean more opportunities to profit.
