Forex Trading - The Volatility Cycle In The Market

Forex Trading - The Volatility Cycle In The Market

It is not unusual for volatility to run in cycles. Usually, periods of high volatility are followed by periods of low volatility.

An explanation for this event is best described in a situation when the market is trending. Forex market often trends and the participants have a definite opinion regarding the direction of the trade.

Natalia Osorio Editor of the "Best Forex Trading" website -- http://www.BestForexTradingUsa.com -- pointed out;

"The cycle can be observed in any trading market though it is most closely distinguished with options trading. Traders in this kind of market write put and call contracts during times of high volatility in order collect the cost of the contract, or the premium. Premiums that are attached to the contracts have the tendency to be fatter when the markets are volatile. The option writer then assumes that the volatility will go back to normal levels in the future. This would allow him to buy back the contracts at a reduced premium. This concept is also known as selling volatility. This kind of cycle in volatility can also be observed in the foreign exchange market"

Moving the Market through Perception

Traders show a strong preference for one currency over another, when a currency pair begins to trend. When strong trends happen, the market is volatile due to the price movement. The perception of value has altered and the price must move to reflect this change of opinion.

When the time comes that the trend has continued for a while, the pair will achieve a certain point where the participants feel that the exchange rate is valued fairly. More so, there will come a point when the bears and the bulls reach an agreement, temporarily, that a currency pair is reasonably priced.

This period of rest or consolidation will eventually come to an end. The bulls and the bears may have attained a temporary agreement, but eventually new information will be introduced into the market. Hence, the perception of the value of the currency pair will modify as this news is absorbed.

"Normally, the catalysts for this alteration of opinion are the economic indicators. Exchange rate breaking out of its narrow period of consolidation and run until the price achieves a new area, where the bulls and bears are once again able to reach a temporary break can be caused by unexpected news events" N. Osorio added.

Further Information About The Best Forex Trading Softwares And Resources By Visiting; http://www.BestForexTradingUsa.com

POST COMMENT

So What Is Affiliate Marketing And How Does It Work? Forex Trading Market - Advantages And Disadvantages Forex Trading Market - Reading A Forex Quote Slam Credit Card Charity Scams So What About Acme People search, is it a scam? Formaldehyde market is expected to parts of the country change for the better - formaldehyde, methanol market - the chemical industry Intelligent Building of Shandong Province on the specification (Community) market advice - Intelligent Buildings - Security Industry There are Advantages to Article Marketing That You May Not Be Aware Of Personalized Caps And Hats For Marketing Acetrader-Daily Market Outlook 28-6-2010 Eat Stop Eat Book Review - Eat Stop Eat Scam? Eat Stop Eat - Eat Stop Eat Review Scam Aug. 28 Shanghai Diary Of Building Materials Market (price Difference) - Prices Of Construction