Full Review of Volatility in Binary Options Trading
Do you like zombie movies? I find them funny sometimes, but what I don’t find funny at all is how the EUR/USD is moving lately. Now you might be wondering what the connection between a zombie and the EUR/USD pair is… well they are the same: dead but still moving. Take a look at what used to be the one of the most volatile pairs in the bunch and you will see that now it moves on average 30 pips per day… 30 pips… and just a couple of years ago it was moving 100-120. We need volatility to trade and today I will point you towards a little tool that shows you the top movers.
How to Use the Volatility Tool?
First of all, if you want to know more about volatility and its connection with Binary Options, I’d recommend reading this piece about Volatile Currency Pairs written by Michael Hodges. There are a lot of tools out there for measuring a pair’s volatility. There’s no need to install any confusing indicators because it is all done from your browser. Now let’s get familiar with the tool itself: you will notice a horizontal bar at the top of the screen which will allow you to change the period for which you want the volatility to be calculated. It is set by default at 10 weeks and the lowest is 1 week. Choosing the right period is something for each trader to decide because if you trade mainly 60 seconds expiries, I don’t see why you would want to see volatility statistics for 10 weeks.
Next, let’s move to the table on the left which is the main part of the tool. You will see 5 columns: “Pair”, “Trend”, “Pips”, “$” and “%”, but the ones we are actually interested in are Pair and Pips because I don’t know how reliable that Trend tool is and we don’t really care about how many pips make 1 US Dollar. Ok, at first the pairs are arranged in alphabetical order but we need to sort them by the average distance they travel during the analyzed period (in pips), with high volatility ones on top. For that we will click on “Pips” twice (first click shows lowest volatility pairs on top). You will notice that Gold (XAU/USD) takes the top spot, with a comfortable advantage, followed by some exotic pairs like EUR/NOK and USD/MXN. Most Binary options brokers don’t offer these pairs to trade, but you can scroll down and pick other volatile pairs which are offered by your broker. Of course, some strategies are better fitted for slow moving and ranging pairs; if you are using such a strategy, it would be a good idea to trade pairs with low volatility (bottom of the table). But no matter what type of strategy you use, with the help of this tool, you can choose a pair with suitable volatility.
Why Does The Volatility Tool Suck?
I believe the main disadvantage for Binary Options traders is the fact that this tool only offers a view of currency pairs and Gold. Stocks, indices and commodities are not covered unfortunately. However, as you can see from this article, the most traded assets are currencies, making up for a total of 79.60% of all StockPair trading volume so I wouldn’t be too worried about the Volatility tool not showing statistics for other assets.
Why the Volatility Tool Doesn’t Suck
Volatility is a measure of movement and you need it for your Option to expire In The Money. Sure, classic Up/Down options only need a pip (or less) to get you the entire payout, but what about Touch/No touch options? Surely a volatile pair has more chances to touch your target than a low-volatility one. What about In/Out Boundary options? Maybe you can choose a low volatility pair and go for an Inside Boundary option – if the pair doesn’t move a lot, it has higher chances of staying inside that channel.
The Volatile Conclusion
The thing is that one strategy cannot work in all types of markets and on all pairs. You have to adapt it to suit the type of movement the pair is showing; if your One Touch target is 300 pips away and you have a 1 week expiry time, you have a lower chance of reaching it if you are trading a low volatility pair. Good traders adapt to market conditions and this volatility tool makes it easier to adapt because it offers a simple view of the pairs’ movement.