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The Disciplined Trader

'Market and Human' Psychology perspectives with tips on how to avoid common mistakes by Pierre Charlebois, Senior Trading Coach at www.TradingPostFinancial.com

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Technical trading lesson - How to gauge volatility

Posted on August 26, 2009 at 9:11 in Uncategorized by Pierre Charlebois

Volatility in a market is a good thing. Without it we wouldn’t have many trade opportunities. Here’s how to measure it.

On any chart set there is an indicator called ATR or Average True Range. This measures the travel of a period (bar or candle). You can set the periods measured to get an average OR set it to 1 to simply get the measurement of each candle.

I set my charts at 1. What this does is shows the total travel of each individual candle from high to low (not open to close). Then I look at the graph to see it Volatility is increasing or decreasing. Trends tend to reverse when volatility changes.

Here’s a weekly chart where I have also added a 52 period to get an average candle size for reference and superimposed it on the 1 period. Looking at this chart one has to question where the volatility went and when is it coming back AND what will happen when it does.

The EUR/USD has not had a weekly move greater than the average since May and has been below average since then. “Some 13 weeks” (Oh how Fibonacci)

Tags: eur/usd, forex, Volatility

One Response to “Technical trading lesson - How to gauge volatility”

  1. on 26 Aug 2009 at 12:25 pm1Anees Ahmed

    Its true they say, ” Commonsense is so uncommon”…excellent lesson..many thanks

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