The OANDA currency volatility chart is not only a good place to start, it’s also free and updated throughout the trading session on the close of each timeframe.The indicator updates on four different timeframes, the 15 minute, the hour, the day and the week, and shows both the extent and direction of price acton. On the right hand side of the chart is the range the instrument has travelled, from high to low in that timeframe. On the left hand side of the chart the equivalent price action is then displayed, either as a move higher or lower.
However, what is important here is not the direction of the price action, but the extent, and from this simple analysis we can draw some important conclusions. Indeed, you can think of this in much the same way as volume price analysis where we are looking for confirmation or anomaly between price and volume.Here we are looking for confirmation or anomaly between range and price, and in addition which instruments are moving (volatile) and which are not.
Whilst there is never any guarantee that historic price behavior anticipates future price action, what the indicator also shows is the relative nature of one instrument to another. This will then help to guide and shape your trading decisions, whether to get in, stay in or exit a position.The next stop is the chart for further analysis. And you can think of this indicator as giving you a quick ‘heads up’ on the price/range relationship across several instruments and markets simultaneously.
If we start with the anomalies first. In the centre of the chart we can see the EUR/JPY and the GBP/JPY have both seen a relatively wide range in terms of the high/low movement, but the equivalent % price movement is very low. Here we might conclude the price has been in a whipsaw or congestion phase, and on the 15 minute chart this would be represented by a doji candle, signaling indecision and a lack of direction, with volatile price action.
To a lesser extent the same could also be said of the GBP/USD and the EUR/USD where the high/low movement has not been confirmed with any move in the price. Moving to the extremes of the indicator here we can see the Australian dollar in the AUD/USD, the AUD/JPY and the EUR/AUD has certainly been moving, with the high/low movement confirmed with an equally solid move in the price. Clearly the Australian dollar is a currency that is on the move with some momentum.
Finally, two currency pairs most certainly not on the move are the EUR/GBP and the EUR/CHF. Here we have a low high/low range coupled with very low price movement. But how can we use this information in our decision making process? And here let’s start with the anomalies first. For the EUR/JPY and the GBP/JPY this is clearly signaling currency pairs that are volatile, but not moving at the moment in this timeframe.
This could be as the result of a news or data release, but may simply be a short term reaction. It may be this represents a possible turning point, or pause in a longer term trend. If we have no position in the market it may be a signal to stay out. Alternatively if we are looking for a volatility based trading position, or if we have already taken a position, it may be good news or not so good news.
Possibly good news if the probabilities are in our favor (although this could change if the pause is only temporary), and possibly bad news if they are not. However, the indicator is sending us some clear signals of indecision coupled with volatility which require further analysis of the chart.The Australian dollar on the other hand is certainly moving against several currencies, with strong price movement coupled with a good price range.
The currency here may be trending, or it may be reacting to news. But one thing is clear, the AUD pairs have not been in congestion in the last 15 minutes. Good news if you are looking to enter a position where volatility or trend is required.Finally to the last of the group, the EUR/GBP and the EUR/CHF, these are certainly not pairs you would be considering if volatility was required.
However, if you were already in the market with a position in either of these pairs, and the probabilities were heavily in your favor close to expiry, this lack of volatility would be welcome and give you the confidence to continue to hold until expiry. Conversely, if you were looking for volatility to move the probabilities in your favor, the prospects for any recovery would be slim.The same principles apply to the other timeframes. And moving to the hourly chart also takes the analysis into applying multiple timeframes. This helps to contextualize the relationships between the various timeframes.