There are many elements one must consider before diving headlong into the retail forex market. Perhaps one of the most important factors a forex trader needs to be aware of is overall market volatility.

While it is true to say that a volatile market carries more risk, at the same time it also offers more opportunity for trading, and potentially, for trading successfully.

At OANDA’s fxLabs, we created a simple graph for traders to get a quick overview of recent price activity for different currency pairs and commodities to help monitor recent market movement and volatility.

The Currency Volatility Graph can help you better understand the current market status and identify outliers that exhibit unusual movements or significant fluctuations in price.

For example, see the snapshot below of the Currency Volatility Graph taken on September 13, 2012, for the Eastern Time zone:

The Price Movement bars on the left show the extent and direction of price change from the beginning to the end of the graph time period (over a one-hour period in this example).

Here, you can see the AUD/JPY currency pair had the biggest price increase among other major pairs, and in general, AUD and NZD gained against other currencies. The bar graph on the right compares high-low movement during the same period. This value is always positive and it can be used as a simple measure of market volatility for the selected currency pair or commodity.

In the above sampled graph, you can also see that AUD/JPY had the highest volatility as well as the largest overall positive price movement. Another interesting observation is that the USD/JPY currency pair had relatively high volatility (high-low movement). However, its overall price did not change much by the end of this one-hour period.

Traders may wish to use the Currency Volatility Graph to quickly identify these kinds of anomalies and then refer to the fxTrade price graph to study the trend and market behavior further. Trading blindly can lead to significant losses. Arming yourself with knowledge and using the right tools to map out your forex trading strategy is critical. The OANDA Currency Volatility Graph can serve to be a useful tool before you execute your next trades.

Do you consult OANDA’s Currency Volatility Graphs when gauging recent forex market movements? Please share your comments in the box below.