Let's examine the weekly chart of the EUR/USD currency pair:
1) the Average True Range (ATR) indicator is designed to reflect and measure the volatility of a trading instrument. It measures the average movement of the currency pair during the time frame that is being measured (in this case the weekly chart)
2) I used here a default period of 14 weeks for the ATR
3) The above EUR/USD currency pair shows an ATR of 0.06000 at the end of 2008, which would translate to an average weekly range of 600 pips. This means that for the past 14 weeks, the pair has moved on average 600 pips per week.
4) From mid 2008 till mid 2009, the volatility was at extreme levels never seen before during the previous 10 years.
Now let's move to the daily chart:
1) The ATR indicator shows that the highest volatility was reached in June 2008 and then started to decrease until now. The ATR reached 0.03400, which means that the average daily range of the EUR/USD was 340 pips per day!
2) The ATR currently is at 0.01470: for the past 14 days, the EUR/USD pair has moved, on average, 147 pips per day.
3) We can expect an increase of the volatility when the EUR/USD will exit from the ascending triangle in which it is currently located, no matter in what direction the EUR/USD finally decides to go. That will be a good time to trade and profit from the volatility breakout.
No comments:
Post a Comment