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The Academy of Financial Trading
Market Volatility
Market Volatility explained
Any Advice or information provided by the Academy of Financial Trading is General Advice Only - It
does not take into account your personal circumstances, please do not trade or invest based solely
on this information. By viewing any material provided by the Academy of Financial Trading or using
any information or tools you agree that this is general educational material and you will not hold any
person or entity responsible for loss or damages resulting from the content or general advice provided
here by The Academy of Financial Trading, its employees, directors or fellow members. Futures,
Contracts for Difference (CFDs), Options, and spot currency trading have large potential rewards, but
also large potential risks. You must be aware of the risks and be willing to accept them in order to
invest in CFDs and leveraged forex markets. Don't trade with money you can't afford to lose. No
representation is being made that any account will or is likely to achieve profits or losses similar to
those discussed in any material provided by the Academy of Financial Trading. The past performance
of any trading system or methodology is not necessarily indicative of future results.
Risk Warning
Volatility – the way to describe market movements
In its simplest form volatility really describes the pace at which prices move higher or lower, and how wildly they swing
Market Volatility explained
Markets
These can be prices of just about anything. However, Volatility has been more exhaustively studied, measured and described in Financial Markets
It really just measures the changing of a market’s price relative to time
It would then follow that Markets prone to high volatility present to us as traders much more opportunities
Markets
Low Volatility
This typically describes a Market that is not moving very much or has a low price change relative to time
Traders who seek to make profits from small movement typically favour such an environment or set of circumstances
Most traders who are employing scalping techniques (trading short term movements) might trade certain markets based on their volatility – simply because it is more favourable to them or more conducive to their strategy's’ success
Market Volatility explained
High Volatility – the scary one!
Most investors tend to steer clear of highly volatile markets – many see it as too risky
Sometimes analysts may use historical volatility - how much volatility an asset has had over the past 12 months – as a way to gauge or estimate future volatility. Some may use Monte Carlo methods
In finance, Monte Carlo methods are used to simulate the various sources of uncertainty that affect the value of an asset, and then to calculate a representative value given these possible value of the underlying inputs
Markets
Based on the calculations and outputs an investor may make decisions he sees as ones that encompass all possible scenarios
Market Volatility explained
Markets
The Conclusion
In general, price volatility can be caused by factors that produce wild swings in demand and supply
They can also be affected by human emotions - this makes predictions harder
Our method uses a more favourable approach of position sizing based on volatility – this keeps us out of being overly dependent of one market, or even having our overall portfolio exposure affected by certain volatility
As technical traders we use recent facts and established patterns to base our future predictions upon
The classical Economic way to calculate Volatility is it is computed as the annualized standard deviation of the percentage change in the daily price.
http://www.businessdictionary.com/definition/volatility.html#ixzz3VVgvplzSMarket Volatility explained
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