Market Volatility in Binary Trading

Published:18 April 2016 Updated:4 January 2024

Studying the intricacies of financial trading, you can not ignore the concepts that can affect the quality of forecasts and, consequently, the result. In addition, Binary Options Trading – is the sphere of stock trading, which along with its profitability and simplicity is also characterized by a high level of trading risks. On this basis, we suggest you consider such a concept as market volatilityThe following are some of the most important features of binary trading, its degree of influence on binary trading and the way it is practically applied.

So, volatility in literal translation from English “variability” – is the degree to which the value of an asset changes over a certain time horizon. This value can be calculated in different time periods: from long-term – when investing in securities or commodity assets, to short-term – when trading binary options intraday on currency pairs.

Market volatility

In any case, market volatility can have a significant impact on trading results and the quality of trade forecasts. Imagine a situation where you, on the basis of technical analysis or indicators, you make a prediction and conclude an option contract, but you do not take into account the volatility of the market at the time of the transaction (expiry time). By setting a long expiration time with low market volatility you might get a loss because quotes will fluctuate weakly near the level of position opening and at the moment of the contract expiration they might move to the loss zone contrary to your forecast.

Therefore the level of activity of movement of quotations in binary trading is as important indicator of technical analysis, as a trend direction. Without a clear understanding of this concept and its calculations it is almost impossible to get a positive result all the time.

Market volatility has several ways of calculation and time frame. In order to get a long-term forecast for the movement of quotations, it is necessary to use the absolute values of assets and the formula for calculating the level of volatility. In case of intraday binary trading relative asset value levels, opening and closing of candlesticks with different time frames – daily, hour and minute candlesticks – are taken as the basis for calculations. It is a complicated way and does not always give one hundred percent positive results. Binary trading is characterized by high activity and pace of trading. Therefore, it will be easier to use special indicators to determine the volatility of the market. The easiest and most accurate indicator in this regard is Bollinger Waveswhich, for example, can be simply found in the indicator set of the broker Binomo. It reacts well not only to changes in the direction of quotations, but also indicates a relative change in market volatility in the short term time frame. Let’s see how it looks practically on the quotation chart of the underlying asset used for binary trading:

Market volatility in the short term time frame

As you can see, the Bollinger Wave channel indicator in addition to the direction of the asset price movement, which determines the average muving of the instrument, indicates an increase in the activity of the quotes movement by divergence of the extreme lines. To put it simply, when the volatility of quotes movement increases in the upper direction, the indicator middle line will turn upwards and the price channel borders will sharply start to widen, thereby showing the degree of change in the activity of the price movement.

For quotes that are in a downtrend, the rules of the indicator do not differ:

Determining market volatility

Having such a simple way to determine the market volatility, a trader can more accurately calculate the time frame for contract expirations and make profit with minimal trading risks. In addition, the Bollinger Wave works well as an auxiliary tool in the technical analysis of the market situation for the underlying asset.

Increase your knowledge in binary trading, tools and methods of forecasting, and then trading on the financial markets will be profitable, easy and comfortable.

5.00 / 1
Leave a review

Reviews

  • I determine the volatility of a currency pair by the news, namely economic calendars. They are very much interconnected, so you should pay attention to it.

    Reply to a review
  • I believe that it is not absolutely necessary that the market volatility is high. It is more important for those traders who are used to opening short-term deals.

    Reply to a review
    • Anton Kanibolockiy 24 April 2016 at 14:58

      Just the opposite, because when the market is turbulent, it is much easier to guess the price direction than when everything is going very smoothly.

    • Sergey Carev 22 May 2016 at 10:52

      It is so much easier to make mistakes, but it also has its advantage, because you can often make more money on mistakes than with your own working system)))))

  • One thing I know is that you cannot trade during the news and immediately before or after the news. The market needs time to react to the news that has passed, so this moment should always be caught. Whoever learns to do it well will always be on top.

    Reply to a review
  • Anyone who has traded Forex before should be familiar with this system. I didn’t pay attention to it at all before, I didn’t pay much attention to it. But now I realize that I am nowhere without it at all.

    Reply to a review
Site Map