The volatility indicators display the size and magnitude of price fluctuations.

There are periods of high volatility (high intensity) and low volatility (low intensity) in any market.

These periods come in the form of waves: low volatility is replaced by an increase in volatility, and after a period of high volatility comes a period of low volatility, and so on. Volatility indicators measure the intensity of price fluctuations, providing an understanding of the level of market activity.

Forex Market Volatility Indicators:

  • Average True Range (ATR)
  • Bollinger Bands (BB)
  • Chandelier Exit
  • Width of Bollinger Bands (Bollinger Bands Width)
  • Chaikin Volatility Indicator (CHV)

The methodology of using volatility indicators

Low volatility implies very little interest in the price, but at the same time it reminds that the market is resting before a new big movement. Low periods of volatility are used to prepare for the opening of positions on the breakdown. For example, when the bands of the Bollinger bands indicator are very strongly compressed, traders expect an explosive movement that breaks through the bands. The golden rule says: a change in volatility leads to a change in price movement.

Another thing to keep in mind about volatility is this: while low volatility can hold for a long period of time, high volatility is not so long-lasting and usually disappears soon.