Definition – What does Volatility mean?
Volatility is a measure of the degree of change in the value of a currency, currency pair or the forex market as a whole. Volatility is most commonly referenced when a currency has seen sharp changes in value compared to many of the other currencies in the market.
Volatility is used in two main ways:
- Low volatility means that there is little or no change in value over a specific period of time.
- High volatility means that values have varied significantly over a specific period of time.
- Medium volatility is sometimes used to refer to a state between low volatility and high volatility.
ForexTerms explains Volatility
Volatility is a subjective measure that is highly dependent on the time frame being used. The price action of a currency pair may be describe as experiencing high volatility when looked at on a minute-to-minute or second-by-second basis, but appear to be a pattern of low volatility when the time frame is stretched out to show days or months.
For forex traders, volatility in the forex market is not simply chaotic change. Even within seemingly meaningless swings in value, trends and patterns emerge as market participants try to make sense of the price action. High volatility markets usually mean that the trends reverse much faster than normal, while low volatility markets tend to carry a trend much longer.