What Is A Volatility Indicator?

Volatility is considered a two-sided coin in CFD Trading. On one side, volatility can help traders achieve profits, especially those who are into short-term trades. On the other side of the coin, there is the uncertainty of the market movements. If you are trading based on your understanding of the market, you don’t want to be surprised by a sudden change in the price direction, something that you didn’t anticipate.

But if you are eager to capitalize on volatility, you should see to it that you use some powerful and popular volatility indicators to save you from all the chaos that appears on your trading charts. Here are the six trading indicators that have good recommendations from successful traders to make volatility your best friend and not your worst enemy.

Bollinger Bands

They are measurements that can accommodate two standard deviations that go above and below the 20-day moving average. When it happens that the distance between these two bands gets too far, it shows that there is increased volatility in the market for the current currency that you are trading. In contrast, the smaller the distance, the less volatility there is in the market.

Average True Range

Three simple calculations are being used in the Average True Range (ATR). To be able to determine the ATR, you should subtract the current low from the current high of the day. After that, you will have to subtract the previous day’s close against the current day’s high. Lastly, you will have to subtract the currency day’s low against the previous day’s close.

Keltner Channel

This volatility indicator analyzes the price movements of the slower moving average against the upper moving average. Keltner Channel is actually an indicator that combines both the exponential moving average (EMA) and ATR. It also appears to have a similar appearance as Bollinger Bands. Only their approach is different.

Parabolic Stop and Reverse

PSAR is a pattern creating a parabolic curve into the Forex chart. There are dots that appear just below or above the price and these dots are created due to the price’s trend movement. Traders are allowed to change the appearance of these dots to be able to correctly identify the opportunities rendered by the market.

Momentum Indicator

This volatility indicator is found in MetaTrader 4. The momentum indicator is also called the rate-of-change indicator and is being used in analyzing the speed of the price movement. MT4 traders can utilize the Momentum indicator to be able to determine the speed and the strength of the price movement under the numerical spectrum. This trading indicator also helps in identifying new trading opportunities.

Volatility Squeeze

Volatility Squeeze is the combination of Keltner Channel and Bollinger Bands used in CFD Trading. They are used in identifying breakout opportunities of a currency pair. Volatility squeeze mostly occurs whenever the Bollinger Bands gets into the Keltner Channel.

Most of the time, Bollinger Bands are just outside the Keltner Channel. But certain periods result in pulling them in to create a narrowing that first appears as an indication to reduce volatility.