Volatility is something that we can use when looking for good breakout trade opportunities.
Volatility measures the overall price fluctuations over a certain time.
This information can be used to detect potential breakouts.
There are a few indicators that can help you gauge a pair’s current volatility.
Using these indicators can help you tremendously when looking for breakout opportunities.
1. Moving Average
Moving averages are probably the most common indicator used by forex traders.
Although it is a simple tool, it provides invaluable data.
Simply put, moving averages measure the average movement of the market for an X amount of time, where X is whatever you want it to be.
For example, if you applied a 20 SMA to a daily chart, it would show you the average movement for the past 20 days.
There are other types of moving averages such as exponential and weighted.
But for this lesson, we won’t go too much into detail about them.
For more information on moving averages or if you just need to refresh yourself on them, check out our lesson on moving averages.