An Introduction to Volatility Analysis tool

Updated on October 13, 2023

When planning for his day trading activities, a trader often has little or no idea about the trading style that he would employ during the day. He often decides to start with no bias toward the short or the long sides.

Despite his belief in a systematic approach, he is most likely not using a trading strategy and many of his trading decisions are based on his interpretation of chart patterns, as well as what he considers to be the optimal entry and exit strategy. Support and resistance levels may be used to trigger this process. The trader may not even take time into consideration other than the time period of the chart that he chooses to follow.

The trader takes an almost fearless attitude to day-trading the market, believing that by following the market’s lead and interpreting the order flow, he will be successful. He may have some success early in the session, but then he starts to have some difficulties. He will then be compelled to become more analytical in his approach after suffering a string of losses.

The trouble is that he doesn’t know what he’s looking for and his dependence on “going with the flow” of the trade has prevented him from recognizing market patterns. The predicted movement per day or intraday, as well as the time of day are just some of the factors that he may have missed.

Autochartist offers an analytical tool for traders that shows insights into the relative movements of the Forex, Futures, Index CFD, and Shares markets aside from the chart patterns and quality indicators that the platform generates.

This data can be a useful tool for traders when evaluating the reward/risk of a particular chart pattern because it provides information on possible price forecasts, risk factors, and time-related patterns.

The Autochartist Volatility Analysis tool is an analytical instrument that provides information to Forex traders such as the average pip movement over specific time frames, the potential up or down momentum based on history, the maximum expected price movements (statistical highs and lows) across different time frames, and the expected price movements over weekday and hourly time frames.

For a trader, the average movement over specific time periods is a vital information as it eliminates the guesswork in determining where a market will go and whether or not upside and downside targets are reasonable. A trader can use empirical data to create stop loss or profit targets instead of attempting to calculate profit targets and stop losses manually while deciding which trade position to enter. This removes the randomness of such a choice.

The financial markets have a tendency to be more aggressive at various times of the day, unless it is a news or event-driven day. The openings and closings of various financial instruments tend to be the most active time periods. The key determinants of price action, volatility and volume, usually exert the most impact over those two time periods.

Because the financial markets are open 24 hours a day, these opens and closures happen at different times throughout the day, allowing the trader plenty of opportunities to profit from the extreme volatility. However, there are also certain periods during the day when the markets just trade flat. When there is no one there to trade it, even the best chart pattern setup can fail.

Autochartist’s Volatility Analysis feature, which is based on a six-month average of hourly price ranges, provides traders with information on the time periods when specific markets are more active. This makes locating trade alerts and understanding why markets consolidate easier. Users will be able to use this data to determine which markets are beginning to consolidate and which markets are about to emerge from consolidation. This knowledge could give you a leg up when it comes to identifying chart patterns that indicate a breakout move is on the way.

With the Volatility Analysis tool, traders can get a better idea of what the market is capable of on any particular day, making it useful — when combined with an economic calendar — to users in taking note of major economic events that are coming up.

The tool calculates the high-to-low range during a 24-hour period, with the average movement for that day marked within a range.

Of course, whether or not you use the Volatility Analysis tools in your trading strategy is a personal choice, but if you answer yes to any of the following questions, you should probably use the data as a guideline:

  1. Do you find yourself unable to hold on to trades until your strategy stops you out?
  2. Do you ever get stopped out just as your deal is about to go in your favor?
  3. Do you frequently trade in the hopes that the market would swiftly swing in your favor?

If you responded yes to any of these questions, then Volatility Analysis is something you should try to work with.

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