Volatility measures how much the market has moved historically over a set period. Volatility changes due to economic data releases, geopolitical events, central bank announcements, movements above resistance or below support, and market sentiment shifts. Traders look for high-volatility forex pairs as they have more opportunities to achieve profits.
How is volatility calculated?
Volatility is commonly calculated using the average true range (ATR) or standard deviation. ATR calculates the average price range over a specified period taking into any gaps between the close and open. Standard deviation measures the dispersion of price data from the mean, indicating the extent of price fluctuations. ATR is shown as a number in pips and standard deviation as a percentage.