gold trading market
financial graph of investment growth

Why Market Volatility is Nothing to Fear

There is a great deal of recent talk about market volatility and what it means for forex traders. By definition, volatility does not mean that the market is going down, it just means that it is entering a time that is more difficult to make accurate predictions based on data from the recent past. While the market as a whole seems to be hitting some lows, there are many positive opportunities for trading on the forex market.

Risk v. Volatility

There is a significant difference between a currency pairing’s volatility and its risk; and volatility should not cause an immediate fear of loss or cause knee-jerk reactions. Volatility should really only be of concern to the most short-term traders. If you have a long-term trading strategy and a goal that will take five or ten years to come to pass, short-term volatility is of no concern.

Currency Pairings Fluctuate

If the forex market were a guaranteed investment, then everyone who invested would be millionaires. Clearly, this is not the case, but people tend to consider market volatility something that happens when the market goes down. When the market goes up, everyone is happy and the word “volatility” isn’t thrown around nearly as much. When gurus in the finance industry discuss volatility, what they mean is standard deviation, so they can make everything quantifiable, even risk. Standard deviation means nothing more than the variation from the norm, or average.

Volatility or Correction?

The many different forces that drive the forex market are affected by less-experienced investors because of such factors as buyer enthusiasm, availability of cash, and willingness to take risk. These factors are all coming together in the recent past, and causing the market to be exceptionally risky – with small-caps hitting recent peaks and then declining, trader enthusiasm seems to be waning and the breadth of gains has been evenly declining as well. These are all signs to analysts that an over-excited market is simply making a correction, after which everything will continue ticking along as usual.

Moderate Levels of Concern

While there are some reasons to be concerned about the gold forex market, industry analysts caution that the concern level should be moderate at this time, not throwing traders into panic mode. Technical indicators are weakening a bit, and there are some signs that the market is softening, but we still have not broken the 200-day moving average, what many analysts consider an indicator that risks are beginning to accelerate in a disproportionate way.

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