What is Forex currency volatility?Forex currency volatility — in simple terms means how much currency moves up and down. It is then compared to it's average "behaviour".
Knowing this we can divide currencies into two groups: "stable" and "volatile" currency pairs.
Stable currency pairs will produce less price moves and behave rather peacefully and steady.
Volatile currency pairs will make large price moves and behave rather aggressively.
Examples of stable, less volatile pairs are Major pairs: EURUSD, USDPY, USDCHF
Examples of volatile pairs: AUD/USD, EURUAD, GBP/USD, AUD/GBP, AUD/JPY, NZD/JPY, CAD/JPY
To get a feel of historical volatility for each currency Forex traders use ATR indicator (Average True Range).
And also consult with historical Average Daily Range for Forex currency pairs.
How to use currency volatility to your advantage?
Stable currency pairs = less price movements = less profits to earn = less risks of losses
Preferred by trend traders seeking long-term profits.
Volatile currency pairs = larger price movements = more profit opportunities = more risks of losses
Preferred by short-term traders, intra-day traders and scalpers seeking quick profits.
Volatile currency pairs will react explosively to major news events. Traders don't want to miss those times.
Volatile currency pairs are also producing quicker decisive moves upon reaching major support/resistance levels.
Due to increased volatility, traders find themselves in the position of either setting larger stops to "survive" the volatility, or setting tight and decisive stops with the goal to exit the market as soon as price goes against them. If the choice is right, however, they are rewarded with larger profit opportunities.
To your trading success!