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Posted on Aug 25, 2015 at 10:25 PM
The tools used to determine the present volatility of a currency is what successful traders use to determine breakout opportunities
Technically, the term "Volatility" most frequently refers to the amount of variation of a change in value of a financial instrument over a specific period of time.
In general, volatility refers to the degree of unpredictable change over time of a certain currency pair exchange rate. It reflects the degree of risk faced by someone with exposure to that currency pair.
In Forex, volatility is often used to quantify the risk of the currency pair over that time period. It is the amount of risk involved with the size of changes in a currency exchange rate.
Volatility is often viewed as negative in that it represents uncertainty and risk. However, higher volatility usually makes Forex trading more attractive to the market players. The possibility for profiting in volatile markets is a major consideration for day traders, and in contrast to the long term investors' view of buy and holld.
When a currency is highly volatile, it means that the price of the currency can change dramatically over a short time frame in either direction.
On the other hand, a lower volatility would mean that an exchange rate does not fluctuate dramatically, but changes in value at a steady pace over a period of time.
Commonly, the higher the volatility, the riskier the trading of a currency pair; but strategically, volatility is something that we can use when looking for breakout trade opportunities.
When studying the volatility of a particular currency, the information derived can be used to detect potential breakouts.
There ar various indicators that can be used to guage a pair's current volatility and this will go a long way in helping a trader to identify breakout opportunities.