Trading Currency Pairs with High Volatility vs Low Volatility
Volatility of the financial markets is what contribute most to the success or failure of most traders ,it determines the market psychology and how people react to price action. The viability of trading strategies anchors mostly on our reactions to the volatility of the market price, so what is volatility this you must know and how it is measured ,this will help you as well to choose trading instruments that will work best in yr trading plan and trading strategy.
It often refers to the amount of uncertainty or risk related to the size of changes in a security’s value. A higher volatility means that a security’s value can potentially be spread out over a larger range of values. It is, therefore, useful to think of volatility as the annualized standard deviation.
3 ways to measure volatility:
- Through moving averages, by comparing the moving average to the current price
- By using (ATR) Average True Range
- Donchian channels
Most volatile currency pairs on top of the list
- AUD/JPY (average volatility – 1.12%);
- AUD/USD (average volatility – 1.07%);
- EUR/AUD (average volatility – 1.07%);
- NZD/JPY (average volatility – 1.05%);
- GBP/AUD (average volatility – 1.05%);
- GBP/NZD (average volatility – 1.05%)
The volatility percentage is as of the current year 2021 rated
Some of the least volatile currency pairs
Some times these pairs are highly liquid but it doesn’t mean they are highly volatile.
Consideration when trading High and Low Volatile
- RISK– currencies with high volatility will normally move more pips over a certain period than currencies with low volatility. This leads to increased risk when trading currency pairs with high volatility.
- SLIPPAGE-currencies with high volatility are more prone to slippage than currency pairs with low volatility.
- TAKE PROFIT- the methodology you will use for taking profit, if it highly volatile a good thing is to trail stop loss and if its a low volatile currency then setting up a Tp at a certain price level will do just fine.
- POSITION SIZE-due to high-volatility currency pairs making bigger moves, you should determine the correct position size to take when trading them