Determining the trading range of a currency pair

Determining the trading range of a currency pair

Understanding how much a currency pair moves on a daily basis is important for a variety of reasons including the usage of stop losses and finding reasonable price targets, among others.

 

Not all forex pairs move the same. Some of them are highly volatile, moving at least 100 pips per day while others are timid, only moving in small ranges of 30-40 pips unless unexpected or major market news are in play.

 

One of the easiest way of determining the daily average range is by using the ATR indicator which stands for Average True Range. The ATR uses a period-specific smoothed moving average to highlight the degree of price volatility. The ATR is rather universal, used by many to better understand what to expect from a certain currency pair or instrument.

 

Let’s look at an example on the EUR/USD (Figure 1)

 

Figure 1

 

The 14 period ATR on the daily chart is just under 50, suggesting a daily range of about 50 pips. You can see that this is lower than the range over the past few months with June seeing as high as 70s and March approaching 80 pips on a daily basis.

 

Let’s look at another example that uses a higher period, better suited for long term trading. In this case (Figure 2) the ATR is set to 35:

 

Figure 2

 

We notice a similar range with the current ATR just above 50 pips. This tells us that the EUR/USD is relatively stable and not exhibiting extreme volatility or trading ranges. The 35 period was a relative one and does not necessarily reflect long term.

 

Another important factor to look for is the decrease in volatility which is usually associated with a sudden and rather large move towards the upside or downside. Furthermore, it would, at some point, indicate the return of volatility which could be pleasant news for volatility seekers.

 

Understanding the ATR of an instrument is important especially for short term traders as they will place their stops and targets accordingly. This does not necessarily mean that a stop that is smaller than the ATR will get hit but it would tell traders to be careful as large whipsaw and volatile conditions could mean erratic movements and more stop losses being taken out.

 

With CFI, you can trade thousands of CFDs on Stocks, Forex, Commodities, Indices, and ETFs from one single platform. If you are new to the financial markets, you can start with a risk-free demo account and for the more seasoned traders, opening a real account is a straightforward process that requires very little time. CFI offers its clients many services and features including free daily webinars, dedicated account managers, daily technical reports, and highly competitive conditions that include fast execution and spreads from zero pips.

 

Click here to find out more.

 

The content present in this article reflects the opinions and views of the author and does not necessarily reflect the position of CFI. The material published on this blog is provided for informational purposes only and should not be considered as investment advice. The Company is not responsible for the decisions and choices of the investor who has full and free will to make decisions that they see appropriate upon the investor’s sole discretion.

Credit Financier Invest (Mauritius) Ltd is an award winning global financial markets provider with over 23 years of experience and regulated entities in several jurisdictions, focused on offering impeccable execution and trading conditions including very low spreads, professional services, dedicated support and powerful tools.
Credit Financier Invest (Mauritius) Ltd has regulated subsidiaries in
London • Larnaca • Beirut • Amman • Dubai • Port Louis
Credit Financier Invest

Important Disclaimer:


We would like to remind that while we endeavour to provide best possible services, CFI provides execution only services and any information, reports, opinions, commentary or other materials he receives from CFI directly or from its employees or through any analytical tools provided to him or third party research provided to him from the Company shall not be deemed as investment advice and it cannot be relied upon to make investment decisions. The Client commits to make his own research and from external sources as well to make any investment. The Client accepts that CFI will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The contents of any report provided should not be construed as an express or implied promise, as a guarantee or implication that clients will profit from the strategies herein, or as a guarantee that losses in connection therewith can, or will be limited.


Forex and CFDs are leveraged products that incur a high level of risk and a small adverse market movement may expose the client to lose the entire invested capital. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The possibility exists that you could sustain a loss in excess of your deposited funds even if a stop loss is used and therefore, you should not speculate with capital that you cannot afford to lose and be aware of trading risks. Credit Financier Invest (Mauritius) Ltd provides general information that does not take into account your objectives, financial situation or needs. The content of this website must not be interpreted as personal advice. Please ensure that you understand the risks involved and seek independent advice if necessary.

niss
forme
The Best Online Financial Trading Services, Middle East, 2020
Entrepreneur Magazine

Please publish modules in offcanvas position.