How to: survive and thrive in a high volatility regime
Volatility is by far the most important variable in trading. Not only can it determine what market you trade it also holds sway over the direction and duration of trade. It is a key metric because volatility creates opportunities and determines your risk and position size.
While traders typically find volatility a positive attribute and welcome a lively market, everyone should adapt to changes in daily ranges and movement. Those who do can flourish, and those who don’t end up paying for it. Watch this video as we explain volatility.
What is volatility
Volatility is an investment term that describes sharp price movements away from a set mean in a market or security. People often think about volatility only when prices fall, though volatility can also refer to sudden rises in price too.
How to read volatility
There are a host of tools and even tradable instruments to read changes in volatility. Many traders will simply use price action to understand the trading range, but others use Average True range (ATR), standard deviation, Bollinger Bands, Keltner bands and the US volatility index or VIX. How you interpret or use these will be down to your trading system but they can help you with your risk and achieving correct position size.
Watchpoint: increased vol = increased risk
Of course, increased volatility brings increased risk. Add to this the use of leverage and the risk factor goes up again. So while there may be more opportunity, if traders aren’t dynamic and adapt their approach to volatility, it can be costly.
How to mitigate risk with Pepperstone
With Pepperstone, you can mitigate risk and more confidently navigate volatility. Here’s why:
- Pepperstone has a range of trading platforms which have access to all the indicators, oscillators, and tools you need to identify changes in volatility and trends in a market. All with the very best insights, news and views to help you with your trading.
- Our charting offers signals and alerts to traders, complementing a suite of advanced order execution and risk management tools at your disposal, including correct position and size calculators.
Learn more about trading CFDS
Here at Pepperstone, our customers love the product range along with the low cost to trade and the fact so many markets are open around the clock. Interested? Watch the more videos to learn or speak to our team about whether CFDs are right for you.