Those trading on the forex market are well aware of its volatility. It is this fluctuation that allows traders to make a profit on the forex market.
Seasoned forex traders have learned to look for signs and indicators to help them make the most educated choice while trading on the FX market. On the other hand, newbies might not be familiar with the industry-related pointers, so mistakes are bound to happen.
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In a nutshell, the forex market is “ruled” by two types of volatility: implied and historical volatility.
To help you emerge victorious, we will disclose four rather easy steps to help you deal with the volatility of the forex market.
Stay on Top of the News
It might sound banal to follow the news to be a successful forex trader, but the truth is that keeping up with the latest happenings in the economy can lead you towards becoming a well-rounded predictor.
Industry-related news can influence the performance of certain pairs of currency – the political and economic evolutions can impact the standings of coin pairs on the forex market. Thus, being aware of what’s causing a stir in the economy or politics on a global scale might help you avoid a flop and even gain profit. Staying on top of recent developments can help you outline your trading strategy most suitably.
If you’re oblivious of what’s happening on the market, you’ll enter it with no background and might face serious financial consequences.
Luckily, there is an abundance of news providers available today – you can pick the most trustworthy ones and get your daily information.
Make Charts and Indicators Your Allies
Experienced forex traders use market charts to see the currency standings and form a trading opinion around them. Also, knowing how to read the market indicators will help a forex trader make a well-rounded, final trading decision.
Following market charts and indicators is a superb way of staying in the loop. What’s more, it gives way to forming a prediction about the likelihood of the standings of the currencies. Whether a currency will move up or go down can be predicted by “reading” the signs.
Still, although these charts and indicators are very useful, taking into consideration the volatility of the forex market, they are not enough to make you money. To profit from trading with currencies, you would need to be somewhat experienced and know how to use these charts with the right strategy.
Recognize the Volatile Currencies
When trading currency pairs with historical volatility, you should brace yourself for rather dramatic price fluctuations. It’s common knowledge that the currencies of major, well-developed countries are deemed more stable than those of emerging economies and vice-versa.
Namely, the EUR/USD is the most sought-after traded currency pair on the forex market. What makes it a desirable one is the fact that it offers more stability. This is similar to the EUR/USD (Euro/United States Dollar) and the EUR/GBP (Euro/Pound Sterling).
These currency pairs are not expected to move up or down drastically, which is why experienced forex traders focus on them.
On the other hand, the most volatile one, the USD/ZAR (US Dollar/South African Rand), takes the lead, followed by USD/TRY (US Dollar/Turkish Lira).
Before you enter the forex market, knowing the volatility history of the currencies might greatly help determine which currency will yield profits and which will drain your budget.
Keep in Mind the Risk
Even if you know all the tips and tricks of the trade, pinpointing the exact movement of the forex market is never 100% sure.
Yes, following charts and reading indicators can help greatly, but you can still end up with a loss. In such cases, having a valid risk management strategy and assessing this trading risk will soften the blow.
To evaluate the risk, dedicate some time to seeing how a currency pair has performed in the past. Look at how many traders have put their money on a particular pair of currencies and make a prediction regarding possible losses.
Conclusion: Dealing With the Volatility of the Forex Market
Although no one can pinpoint the precise behavior of the forex market, some tips can help aspiring FX traders make the most of their trading experience.
From keeping up with the latest news and data to following trade charts and indicators to identify “risky” (or rather volatile) currencies – there are plenty of ways to make forex trading successful.