Market Volatility for Dummies

Okay so you've probably come across the term market volatility when scanning the daily news for a gauge on what's happening on the world's markets. If you haven't been doing that every single morning before you even contemplate placing a trade then you need to navigate away from this page immediately and check out our articles on fundamental analysis. READ THE NEWS DUMMIES! (sheesh). Now for those of you who do read the news and have come across the term market volatility, do you understand what it means and how to look for it while trading?

It's simple enough but misunderstanding this concept can lead to applying the wrong types of binary trading strategies, or applying the right ones at the wrong time. When a market is volatile this not only means that there is a great deal of fluctuation in price action (as in constant movement from up to down and back again). Sure, this is one of the underlying conditions you need to look for, but more importantly it means that this price fluctuation is significant. This is very very important to us binary traders for whom up and down is everything. A volatile market is one in which price swings wildly. Those little ups and downs you witness as you monitor your preferred securities occur all the damn time yo, do not confuse these with market volatility. When you see an asset rapidly rising, then plunging, then ranging for a while, then performing the whole mad dance all over again then you are dealing with a volatile market.

 

Also if a volatile market is swinging too wildly, as in the uptrend (or downtrend) carries on moving the asset into recently uncharted territory then you are dealing with volatility, but you are also probably dealing with a trend that is set to reverse. As such your trading strategies need to be hip to this distinction. A trend reversal can call for a longer term trade (PUT if it is an uptrend due to reverse and CALL if it is a downtrend due to reverse), whereas generally volatility swings are much shorter lived and require quicker trades. For instance a trend reversal trade can work out for you at anything from the 20 minute expiry all the way to end of day, whereas you probably want to steer clear of longer expirations in times of high volatility because, as the name suggests, the markets are swinging for the fences and you traders have no idea which side is about to be knocked unconscious. Right that's it for volatility. Go and read the news... Now!

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George Milios

George Milios is the founder of onlineforextrading.net, the binary options and forex news portal which is dedicated to providing you with all the information you need to successfully trade.

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