How To Set A Stop Loss Based On Price Volatility?

To put it in simple terms, volatility is the amount a market can potentially move over a given time.

Knowing how much a currency pair tends to move can help you set the correct stop loss levels and avoid being prematurely taken out of a trade on random fluctuations of price.

For instance, if you are in a swing trade and you know that EUR/USD has moved around 100 pips a day over the past month, setting your stop to 20 pips will probably get you stopped out too early on a small intraday move against you.

Knowing the average volatility helps you set your stops to give your trade a little breathing room and a chance to be right.

Method #1: Bollinger Bands

One way to measure volatility is by using Bollinger bands.

You can use Bollinger Bands to give you an idea of how volatile the market is right now.

This can be particularly useful if you are doing some trading range.

Simply set your stop beyond the bands.

If price hits this point, it means volatility is picking up and a breakout could be in play.

Method #2: Average True Range (ATR)

Another way to find the average volatility is by using the Average True Range (ATR) indicator.

This is a common indicator that can be found on most charting platforms, and it’s really easy to use.

All the ATR requires is that you input the “period” or amount of bars, candlesticks, or time it looks back to calculate the average range.

For example, if you are looking at a daily chart, and you input “20” into the settings, then the ATR indicator will magically calculate the average range for the pair over the past 20 days.

Or if you are looking at an hourly chart and you input 50 into the settings, then the ATR indicator will show you the average movement of the last 50 hours.

This process can be applied by itself as a stop or in conjunction with other stop loss techniques.

The point is to give your trade enough breathing room for fluctuations here and there before it heads your way…and hopefully, it does.

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Global Market Overview for Today!

MARKET HEADLINES:

 Major Catalyst: U.S. Hopes for More Stimulus Prospects.

 Commodity: Gold Down, Investors Await Biden’s “Trillion” in Stimulus Plans.

 Oil: Oil Down, Rising Cases Stoke Fuel Demand Worries.

 Forex: Dollar Up, Investors eyes “Trillions” in Stimulus Plans.

 Global Market: Trump Bolsters Ban on U.S. Investments in China.

 Industry Catalyst: Signal sees "unprecedented" growth after WhatsApp controversy

 

 

CATALYST FOR COMMODITY

Gold was down on Thursday morning in Asia, with investors awaiting details on U.S. President-elect Joe Biden’s plans for further stimulus measures. Gold was down 0.85% at $1,839.20. U.S. Treasury yields and the dollar both saw rebounds on  Thursday. Benchmark ten-year Treasury yields rose to hover near ten-month highs, boosting the dollar against rival currencies. Biden has promised to deliver measures that could cost “trillions” of dollars and will unveil them later in the day. The yellow metal will be struggling around these price levels as the stimulus will have both positive and negative impacts. Investors will also look for further clues on the U.S. monetary policy outlook when Federal Reserve Chairman Jerome Powell speaks at a virtual event later in the day. 

CATALYST FOR OIL

Oil was down Thursday morning in Asia, with investors weighing the ever-rising number of COVID-19 cases and the impact for fuel demand against a fifth consecutive week of declines in U.S. crude oil supply. Brent oil edged down 0.16% to $55.97 and WTI edge down 0.15% to $52.83. Both Brent and WTI remained above the $50 mark. Oil market’s sizzling rally likely took a hiatus as the stronger dollar and the omnipresent gasoline supply overhang offset the evaporating U.S. crude inventories. U.S. crude oil supply data from the U.S. Energy Information Administration (EIA) released on Wednesday showed a draw of 3.247 million barrels for the week to Jan. 8. The draw was bigger than the 2.266-million-barrel draw in forecasts.

 

 

CATALYST FOR CURRENCY

The dollar was up on Thursday morning in Asia, continuing a rebound from near three -year lows against major peers as investors await U.S. President -elect Joe Biden’s plans for further stimulus measures. The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.04% to 90.373. The index was little changed on Thursday after adding 0.3% during the previous session. It fell to as low as 89.206 for the first time since March 2018 on Jan. 6. The USD/JPY pair edged up 0.17% to 104.03. The dollar remained little changed against the yen, after a previous 0.1% rise. The AUD/USD pair edged up 0.19% to 0.7747 and the NZD/USD pair was up 0.24% to 0.7195.The USD/CNY pair inched up 0.05% to 6.4712. Chinese trade data released earlier in the day.

 

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