Technical Analysis on Currencies: Which Currency Pairs Are the Most Volatile?

If you want to get into FX trading, you’ll need to understand volatility and learn how to make predictions. At the very least, you’ll need to find trusted sources of information for those predictions. This means that you’ll need to learn technical analysis and use it to understand FX fluctuations. FX trading can be extremely rewarding, but it’s also very risky. Considering that the year 2020 is set to be the most volatile year in history, now is the time when you can make a fortune. However, you might also lose a fortune on FX trading even more easily. The difference, in large part, will depend on how good you understand when to make a trade in which direction.

Volatility and Predictions: The Power of Technical Analysis

Success in trading requires making accurate predictions. To make those predictions, or at least evaluate predictions made by someone else, you need to see the patterns in the movement of FX rates. Those patterns are repetitive, which means your main task is to understand what they are. This way, by seeing the situation today and yesterday you’ll be able to say what it’ll be like tomorrow.

It might sound very simple, but the reality is far more complex. First of all, understanding the patterns is a challenge in itself. That’s why you should always start by studying technical analysis for beginners. It will teach you where to look to even spot a pattern. You’ll learn which indicators matter most and how external factors, such as global politics, affect individual currencies. As a result, you’ll be able to get some idea of which currency pairs might be best for investment simply by studying the world news.

However, while technical analysis can be very detailed, not even the best predictions made by supercomputers are 100% accurate. That’s because patterns can be broken by a variety of factors.

For example, take a look at the Chinese yuan. Last year, it strengthened by 7.0008 pips against the USD, which is remarkable in itself. All indicators showed that this trend should continue as the country’s economy grows stronger, the Trade War notwithstanding. However, that same economy is now rapidly going downhill because of the recent coronavirus outbreak. This is something nothing could have expected or planned for.

That’s what volatility is all about. If the FX market was simple and predictable, trading in it would have been easy. But volatility is a major factor in forex, and its unpredictability makes technical analysis’ results often inaccurate. There is some measure of planning possible even considering volatility, because it often follows patterns of its own. However, the risks with volatile currencies are much greater. The good news is that so are the rewards, because sudden fluctuations in currency value can result in extremely profitable trades.

The Most Volatile Currencies: Predictions for 2020

Volatility is relative, and any predictions about it can’t be trusted completely. However, you should make some conclusions based on assessing the recent volatility rates of various currency pairs.

Among the major pairs, the least stable at the moment is GBP/USD. This is both surprising and not. It’s surprising because both these currencies are the so-called “reserve” currencies. This means that people choose to invest in them to store some of their assets. It’s similar to buying gold. With these currencies being generally stable and backed up by huge bank reserves, this seemed to be a good bet for investors. However, Brexit, the China-US trade war and many other political factors destabilized both of these currencies to some extent. As a result, the biggest FX trading pair today is one of the most volatile. And this volatility won’t change as the reasons that drive it remain.

Other volatile currency pairs today include:








Exotic currency pairs are more volatile by default. That’s why they are often the best choice for FX traders that want to make money faster. Among those, the most volatile pair of 2020 so far is USD/SEK but USD/BRL isn’t far behind. USD/TRY, USD/INR, and USD/DKK also are very volatile, which means they are good investments under the right circumstances.

Those “right circumstances” are determined by your ability to perform technical analysis of the FX trends for a specific currency pair of your choice. Remember, volatility is unpredictable, so you need to be highly skilled indeed to try play it and win in the forex trading market.

There are tools to help you perform technical analysis, but the final decision is always yours. This means that you need to have a good understanding of trends and patterns in the FX market to make decisions that won’t bankrupt you.

Also, you should remember that while exotic currencies are tempting for their volatility and therefore promise of great rewards, they also have low liquidity. Therefore, they are extremely risky for investors. Only those with capital to offset big losses should try exotic FX trading. Even if you choose to take this step, be sure to trade small sums and diversify your portfolio. This will reduce the risks as much as possible.

But nothing can remove risks completely, so mastering technical analysis and finding all the best sources of information should be your priority.

Final Thoughts: How to Do FX Trading to Yield the Biggest Returns

Forex trading isn’t simple, so if you believe that you’ll be able to get good return on investment without diving beyond the basics of technical currency analysis, you are set to fail. If you are serious about this type of trading, you’ll have to do a lot of research. You must understand how currency exchange rates are determined and what affects them. You also need to learn how to read economic and political situations to see their implications for FX trades.

This won’t be easy or fast, so start learning technical analysis today. You also need to understand volatility and how to use it to your advantage. The year 2020 offers some fantastic opportunities for FX traders because even the stable reserve currencies are becoming volatile. But it also creates a lot of risks. Your understanding of trends and relationships between currency pairs will determine whether you can use this volatility to your advantage.