Volatility is a calculation that determines the rise and fall of prices in stocks or foreign exchange. The difference in the value of shares and foreign exchange will represent the market, then have an impact on the trading sector. To find out more, visit melhores corretoras de forex.
A market with high volatility can influence price movements more quickly than a market with low volatility. Apart from that, volatility can also be used to measure risk. However, you cannot use it as a benchmark for foreign exchange transactions.
Volatility affects the risk that occurs when you trade in certain currencies. The higher the volatility, the more profit you get.
Reasons for Volatility to Determine Profits
As explained above, volatility is the most important characteristic in the money market or forex.
The following is an explanation of volatility in the money market or forex:
Volatility Becomes a Market Mood
Volatility is the amount of price change that shows the market fluctuation in a certain period.
Why is volatility referred to as the Market Mood? Because you can see stock prices increase or decrease when the volatility is high.
When the market is calm, it means that there is low volatility, where sellers and buyers do not control the market.
Profit is directly proportional to the risk
If the volatility is high, then you will get a big profit. This is because the price has jumped from the previous closing price. This is directly proportional to the risk opportunities because no one can predict market movements.
Use Stop loss
When profit is directly proportional to risk, then you can use a stop loss that is lower than your target profit.
Fundamentals Contribute to Volatility
Volatility will increase if there is new information that is different from market expectations at the time of the release of the data.
Usually, brokers provide Calendar Economy to notify the schedule of data releases or events that increase volatility.
Volatility as the Main Target of Traders
You can also take advantage of high volatility when attending trading meetings, where liquidity is high or there are important news releases, such as the United States (US) economic data.
Meanwhile, for low volatility, there will be a national holiday, such as Christmas, New Year, and others.
So, now you understand what volatility is. The most important point of volatility is a price movement that is used as a measure of market food.
The fluctuation itself occurs because of the popular transaction value of certain types of stocks or foreign currency. Also, fundamental analysis affects the selling and buying value quickly.