Forex Trading Strategies
How to Act on Volatility in Forex Trading
Volatile markets create trade setups, so you need to act fast when the opportunities arise. The Forex market is no different – Forex traders live on volatility. Still, many traders miss on this rapid and rewarding market movement by following very liquid currency pairs and ignoring important forex economic calendar events. In addition, be prepared to trade wherever you’re – markets don’t sleep and neither should you. By using a trading software which runs on all computers, such as the Meta Trader 5 web trading platform, you’ll be able to act fast and catch the price movement as soon as the volatility appears. In this article, we’ll show you a few simple tips to stay ahead of volatile price movements which can be easily applied to your everyday trading.
Include Cross-Pairs and Exotics in Your Trading
If you follow the online Forex trading community, you may have noticed that a lot of attention is placed on the major pairs, which include the US dollar as either the base or counter-currency. Cross-pairs (which consist of two major currencies but exclude the US dollar) are relatively less discussed, and you won’t be able to find a lot of reference to exotic currencies.
The problem with this approach is that majors are usually significantly less volatile than cross-pairs and exotics. The reason for this lies in their liquidity – the more liquid a pair is, the more buyers and sellers are waiting to jump into the market at any given price-level, which in turn turns volatility down. Let’s take EUR/USD for example. Theworld’s most liquid currency pair hadan average daily volatility of only 75 pips in the beginning of 2018. Compare this to the average volatility of GBP/JPY (a cross-pair) of 218 pips, or that of USD/TRY (Turkish lira) which reached 377 pips, and you’ll see the difference.
By including cross-pairs and even exotic currencies in your trading, you’ll find that their volatility increases your profit potential significantly. However, pay attention to your risk tolerance – volatility may easily go against you as well.
Make Sure to Have Access to the Markets
How many times did you open a chart and missed a spike in the price? This is especially true in times of major news releases when the price can easily jump dozens or even hundreds of pips up or down. If you find a possible trading opportunity based on volatility, you need to act fast and enter the market as soon as possible. In case you’re not in front of your trading desk, you can use a web-trader such as the MetaTrader 5 Web Trading Platform. A web trading platform can be fired up on any computer with a web-browser, so you won’t miss any trades even when on the go.
Follow Major Calendar Events
By following Forex economic calendar events, you’ll be able to stay up-to-date on all major developments and reports in the market. And as we said above, those reports can generate many trading opportunities of which you otherwise wouldn’t be aware of. Each morning, scan the economic calendar for upcoming events that may impact your open positions. And if the actual release unleashes enough volatility to break major technical levels, fire up your trading desk and be prepared for the upcoming price-action.