Strategy Video: Using Volatility to Analyze the FX and Capital Markets
• Volatility measures offer a unique analysis tool that can filter opportunity and risk
• Activity levels tend to revert to a 'mean', so we can use volatility to evaluate range, breakout and trend
• While there are a number of volatility indexes for different asset classes, there is a more universal tool
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Volatility is a ubiquitous feature of the financial markets and our trading. Analyzing and utilizing it properly is critical for a deeper understanding and general success. One of the more common uses for activity gauges is as a measure for 'risk'. We assess whether the investing masses are looking for safety or scrambling for yield, and we can establish which assets are best positioned to take advantage of the changing tides given their relationship to volatility. We can also use it as a gauge for a gauge of an individual market's or particular asset's trading level moving forward - critical for establishing whether to trade with a mind for range, breakout or trend. In today's Strategy Video, we discuss how to measure volatility and compare FX to a number of other risk-sensitive asset classes.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.