There’s no doubt that even for seasoned investors volatility can be scary. It can turn a profitable position into a loss-making one in just a matter of days or hours, so it’s no surprise that a lot of traders will religiously monitor all measures of volatility for the market that they’re trading in in an attempt to avoid sudden losses. There are however a great many people that do actually actively search for volatile markets, because that’s where they make their money. If you’ve just recently become invested in the world of forex, and are still developing a strategy, then you might want to read on to find out how you can make volatility work for you.
Part of the secret is in leverage. This is of course where your investment is amplified or scaled up, so that you can earn more money than you’d otherwise be able to with the capital that you’ve invested. This is especially common with certain forex trading products such as spread betting (find out more about how it works). The fact is that leverage is at its most effective when making numerous small trades, and these numerous small trades can only happen when a market is moving rapidly. In other words, you need volatility for things to happen. If a price chart is moving slowly in either direction, then there’s little opportunity to make significant money quickly.
With leverage, you can invest small amounts on small and rapid fluctuations and still come away with decent money. For many day traders, volatility is a staple, and they will look for a certain amount of it to fit in with their strategy.
So, if you’re the sort of person who prefers fast day trading and scalping, then volatility could well be for you, but that’s not the be all and end all of volatility. The other thing you do need to think about however is technical analysis.
The fundamentals of a currency are very unlikely to tell you what’s going to happen minute by minute, so you’re going to need to read up on how to analyse charts and spot patterns if you’re to be successful. As the price moves, you should be able to uncover opportunities. You need to be willing to watch charts second by second to spot these opportunities, because they could be gone very quickly. Timing is everything.