Hi, I just started going through the babypips course and I noticed that currencies are grouped by trading volume. Shouldn’t they be arranged by volatility because trading opportunities arise from volatility? Why are they grouped by the size of their economies?
Trading is a planning project. Where entry is made with discipline. The trading process is simple but it has to be sorted. And you have to gain profit with patience by analysis. And when there is high volatility in the market, it is necessary to refrain from trading.
Volatility is not a constant, it can change quite quickly. In any case, there is no universal acceptance of how volatility should be measured and expressed.
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Where ever did you get this idea? I totally disagree with it, assuming you are a real entity.
I would suggest that high volatility trading is a high risk venture that if all the ducks line up, it can be profitable - or on the other hand, return a higher loss. Low volatility trading is like watching paint dry, suitable for waiting another day.
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Hi @steve369
This is how I understand the theory of volatility. The ATR (x) is the average true range over x days. When setting an amount to risk on any single trade, I quantify that in terms of 1.5ATR(14). For example, if the Average True Range of the GBPUSD pair is 0.00820 (82 PIPs today 30Dec21), I would set my risk value to 82 x 1.5 PIPs. Back on 27Mar20, the ATR(14) was 0.02708 or 270 PIPs. So if my risk per trade were $200, I would be trading $200 / (82 times1.5) today ($1.63 per PIP) whereas on 27Mar20 that same trade value would have been $200 / (270 times 1.5) ($0.49 per PIP). So why do I think that it is better to trade in high volatility than in low volatility? Because volatility causes price action (price movement), and price movement is the only way that a trader can make (or lose) money. If there is insufficient volatility to move the market, there is no point in entering a trade.
Since this concept is very important I would not forgive myself for blowing smoke up someone’s a_s, so please (anyone) correct me if I have misinterpreted and am misusing risk management.
From the mentor. My teacher gave me ideas about this. The market is managed in 4 ways, for example,
- Volatile
- Non-volatile
- Impulsive
- Corrective
These formulas we usually consider as market context.
Hi,
Thanks for the market context. Did the mentor suggest that each of these market contexts would require a different trading plan, or did he only exclude participation in a volatile market?
These formulas work very well in every market. For example, when the market is ranging, we work with Volatile. And when the movement is good, I work with non-volatile.
In basic forex nomenclature, the different currency pairs of the world are divided into groups by the amount of daily trading activity and liquidity in each of them. You can also see the currencies grouped into reserve, commodity, exporter and high risk currencies here.