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Best forex volatility indicator

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.

Comments

  • trader

plz explain the bollinger bands.I shall be greatly indebted.thanks for all the stuff till now.

  • FxIndicators

Thank you. I've added Bollinger bands page. Happy trading!

  • trader

all indicators are repaint

  • trader

all indicators are repaint(above statement)

How to use the Chaikin volatility indicator

It is volatility that is ultimately responsible for a traders profits, since if a market does not move, then there is no way to make money from it. Its therefore vitally important to recognise those times when volatility is picking up as this offers the best opportunities to make trades.

As traders, we know that volatility often peaks at certain times, for example when the European and US sessions crossover. However, it would be even better if there was an indicator that could show changes in volatility more scientifically, and the Chaikin volatility indicator aims to do just that.

Developed by Marc Chaikin, the Chaikin volatility indicator depicts volatility by calculating the difference between the high and low for each period or trading bar. It measures the difference between two moving averages of a volume-weighted accumulation distribution line.

It therefore differs from the simple Average True Range (ATR) indicator in that it does not account for gaps.

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This aspect is good for short term traders; gaps often occur overnight and can cause peaks in volatility to be downplayed.

The Chaikin indicator, however, shows precisely when the market starts to move. Its default settings are left at 10,10.

The Chaikin in action

The great thing about the Chaikin indicator is that it often peaks at around the same time every single day. This means that is the perfect tool for helping to time your trades.

Take a look at the below chart for GBPUSD and you can see what I mean. The Chaikin indicator dips in the early morning Asian session before climbing higher as Europe and the US open for business. In fact, the indicator peaks between 14:00 and 16:00 GMT every day in the chart.

What this means is that the Chaikin provides a great guide as to when to enter and close a position. As you can see, when the Chaikin is below 0, there is nothing much going on in the market. Its during these times that you should refrain from trading and wait for the Chaikin to tell you when things are hotting up. Chaikin is thus excellent for restricting the propensity to overtrade.

Once the Chaikin starts to move past 0, you can enter a trade, perhaps using another moving average crossover or pivot level as your guide. If you get a strong signal and the Chaikin has moved past 0 then it is a great chance to enter your trade.

Once the Chaikin peaks, you know that you can start to think about closing your trade. You also know that this will be between 14:00 and 16:00 GMT every day. Which makes sense, because European markets close around 16:30 GMT.

It is this regularity that can make the Chaikin indicator an essential tool for those who make 1-2 forex trades a day.

Best Forex Trading System
Volatility Indicators

Volatility Indicators can be used to develop a best forex trading system or trading strategies suitable for trading Stocks, Exchange Traded Funds, Forex, Commodities , Bonds , Futures, etc.

Technical Analysis of financial markets is the study of market action using price charts to forecast future price direction. The basic philosophy of technical analysts is that all factors that influence price are quickly reflected in the price and the study of price action can reveal future performance. Technicians are concerned with the trends implied by past data, charts and technical indicators. Many believe that history repeats itself in the markets. A fundamental analyst on the other hand tries to ascertain the intrinsic value of a security in an effort to forecast future performance.

As Charles Dow, a pioneer of technical analysis in the late 1800’s said, “the market reduces to a bloodless verdict all knowledge bearing on finance, both domestic and foreign.” Other famous pioneers in the early half of the 20th century include W.D. Gann and R.N. Elliott. Over the decades and particularly with the dawn of the computer age, technical analysis has grown in sophistication and popularity and is widely practised in the analysis of markets today. In fact most online brokers and trading platforms offer free charting packages.

Technical analysis is used to identify trade entry levels as well as targets for taking a profit or loss. There are many indicators used in technical analysis and reading a book on the topic is likely to leave one more confused than ever. The main point is that you don’t need to know every indicator in order to trade successfully. In fact, a major pitfall for those starting out in trading is using too many indicators in their analysis, thereby over-complicating the trading process. Most traders only use a handful of indicators in order to trade. However, it is good to know that other indicators exist and that there are traders out there who have a different view to what your analysis suggests.

Below is a list of popular volatility indicators with further explanations on the links. It is an explanatory section rather than a comment on the effectiveness of the indicator. It is not necessary to learn how to apply them all and again I stress that most traders only use a few in their trading.

Volatility in financial markets is a measure of the price variation of a market over time. Volatility indicators show the size and the magnitude of the price fluctuations of a financial instrument. Markets change from periods of high volatility (wide fluctuations in prices) to low volatility (a reduction in fluctuations in prices). Typically, markets become more volatile in an environment of fear or panic. Knowledge of the historical volatility of a market can aid trading strategy because it gives the trader a better idea of how prices much prices will fluctuate during times of high and low volatility.

How to Measure Volatility in the Forex Market

By Tyson Clayton

How to Measure Volatility in the Forex Market

Measuring volatility in the Forex market enables traders to know the overall turbulence associated with a particular currency pair so as to identify the most profitable trade opportunities. An increase in the volatility of a currency pair in the foreign exchange market is usually due to major changes taking place in the economy of the country the currency represents.

Here are three indicators for measuring the volatility of a currency pair.

Video: How to Measure Volatility in the Forex Market

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1. The Average True Range (ATR)

The Average True Range or ATR in general calculates the range of a session in pips and then establishes the average of that range over a particular number of sessions.

For example, if the ATR is set to 15 on a daily chart, it would give the average trading range for the previous 15 days. As such, this indicator gives the present reading on the volatility of a particular currency pair.

When the indicator is falling, it signifies that the volatility of the pair is reducing, and when it is rising, it signifies that the volatility of the pair is increasing.

It is important to note that this volatility forex indicator does not offer an inference for the direction of price trend; however, it basically gauges the level of price volatility, from high low for the day.

2. Bollinger Bands

Bollinger bands are an exceptional indicator at showing volatility. In general, these bands are two lines drawn two standard deviations above and below a moving average for a K amount of time (with K representing any figure you choose).

For example, if it is set at 30, there would be a 30 Simple Moving Average and two lines in which one line would be drawn +3 standard deviations above it and another line -3 standard deviations below it.

The bands are very dynamic in nature and they automatically contract when volatility is low and widen when volatility is high.

3. Moving Averages

Another crucial volatility forex indicator and arguably one of the oldest is the moving average.

In general, moving averages are lines drawn on charts to give the average price at a given point over a definite period of time such as minutes, hours, days, or weeks. For example, if a 30 Simple moving average is plotted on a daily chart; it would give the average movement of the market for the past 30 days.

There are different kinds of averages, however. The major types most used by traders are: Moving Average Convergence Divergence (MACD), Exponential Moving Average (EMA) and Simple Moving Average (SMA).

To learn more (a lot more) about moving averages check out this blog post.

All of these averages perform similar functions and because of that, all of the averages turn out to be pretty much similar. The function they perform is to eliminate or minimize the noise that is related to the day-to-day price movements and the alluring forex trends along with whatever is plotted on the charts.

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