Currency markets are prone to a range of factors which affect volatility and many traders look to adjust their strategies to gain on most volatile currency pairs. Volatility is typically measured using the standard exchange of currency and gives traders an expectation of how much a currency can detour from its current price over a certain period. The higher the volatility of the currency, the higher the risk will be.
Volatility and risk are usually used as mutual terms amongst traders. Different currency pairs have different volatilities. Some of the favorites and majors to use amongst traders in the industry are EUR/USD, (Shawn Lucas is the head trader at The Apiary Fund, and he trades the EUR/USD pair on a daily basis) USD/JPY, GBP/USD, and USD/CHF. Some of the others have less volatility, like USD/ZAR, USD/KRW and USD/BRL. Normally, more liquid currency pairs have less volatility, Forex traders should take current volatility and potential changes in volatility into account when trading. Traders should also adjust their position sizes with care to mirror how volatile a currency pair is, because of the more volatile a currency pair, the smaller the position the trader should take.
To trade volatile currency pairs, you need to understand the differences between volatile currencies and currencies with low volatilities, you should also know how to measure and also be aware of all news events that create volatility. Shawn Lucas is so exciting to watch trade especially when volatility kicks in because currencies with high volatility will normally move more pips over a certain period than currencies with low volatility. Which leads to an increased risk when trading currency pairs with high volatility. Volatile currency pairs still comply with many techniques of trading, like support and resistance levels, trend-lines, and price patterns. Traders can take advantage of the volatility using technical analysis in combination with strict risk management principles.
Staying up to date with the latest Forex pairs’ news, analysis and prices can really help you predict possible changes in volatility. Watching daily webinars, (your brokerage company should provide them for their traders) can help you prepare for volatile market times. As a trader, you also need to be able to determine the correct position size and have an expectation of just how volatile currency can be. To do so, you can use a few indicators to measure the volatility, such as ATR (Average True Range) and Moving Averages (by comparing the moving average to the current price.) I hope this helps you get more information on volatility and currency pairs and ultimately gives you the guidance to tweak your strategy to get more profitable pips.