Market volatility is a major character in the forex market. This is what makes the forex market called the largest and broadest market in the world. It is because you will look for profit opportunities from the differences in market price movements that are always changing. According to Investopedia, volatility can benefit investors of any stripe. Thus, volatility determines your profit opportunities:
Here are some important things you should know why volatility determines your profit opportunities:
Volatility is referred to as “market mood”
Volatility is the magnitude of price changes that indicate market fluctuations in a certain period. It is called “market mood” because you will see prices can jump sharply or even freefall weakened. It means there is high volatility. Meanwhile, when the market is calm, it means that there is low volatility in which no seller or buyer dominates the market.
Profit opportunities are directly proportional to risk opportunities
When there is high volatility, you will get a large profit opportunity because the price will move far from the previous closing price. However, this is directly proportional to your risk opportunity because no one can hold and predict market movements. It’s time for your stop loss to play a role.
The use of stop losses
“Cut your losses short and let your profits run.” This statement will be very applicable when the market is in high volatility. When the profit opportunity is directly proportional to the risk opportunity. Then, to anticipate an uncontrolled loss, you can place a stop-loss position that is smaller than your target profit level.
Fundamentals affect volatility
Volatility increases when there is new information that differs from market expectations during the release of data from one of the important events in the economic market. Brokers usually provide an Economy Calendar to inform scheduled data releases or important events that can trigger increased volatility.
Volatility is the main focus of traders
You can take advantage of high volatility during daily trading session meetings (overlap) where the forex market liquidity is high or when important news releases such as US economic data. While low volatility will occur during national holidays such as Christmas, Thanksgiving, New Year, and others.
When volatility is high, deal with the condition wisely by considering the lot size, determining to take profit, and placing a stop loss. This is a key trading strategy when you face market conditions with high volatility.