Market volatility is a frequent change in price direction, caused by a number of reasons. With a large amplitude of the waves, trend indicators can be used, small corrections on a clearly directed trend are ignored, and correction in flat is a signal that the situation should be out of the market. Most often, a trend correction is confused with a reversal. If a reversal is a clear change in the direction of the market, then a correction is a temporary pullback with a subsequent resumption of the main price movement.
The reasons for the correction are as follows:
- a change in the volumes of supply and demand in a short time interval, provoked by institutional investors;
- price noise;
- the impact of local news.
Trend correction: market analysis using the indicator
Damiani Volatmetr is an indicator of volatility that was presented to traders in the spring of 2008. It is not included in the base number, but for MT4 and MT5 it can be found on the Internet. If you do not succeed, leave a comment in the e-mail address and we will send it to you for free.
The trend correction indicator has several versions, which differ in both a formula (slightly) and visual visualization. In the second case, a gray cloud means a weak trend, orange – blue. There is another variation of it (it is more convenient for us) – adaptation by the color of the lines. The indicator identifies market phases with large and small amplitudes. For example, if the green line is near or below gray, then the trend correction amplitude is small, which means there is no point in opening a deal.
- timeframe – M5;
- asset: Euro / USD. US dollars US / Swiss franc;
- Damiani Volatmetr: Viscosity (viscosity) = 7, Sedimentation (precipitation) = 50, Treshold_Level (threshold level) = 1.1, lag_supressor (lag suppressor) = true.
How to open a long position:
- There is high volatility in the market. Damiani Volatmetr shows the divergence of the lines: the Green and Gray lines diverged for a relatively long distance and did not converge for a long time;
- in the afternoon (about 17-18.00 EET) the Green and Gray lines intersect. Time has a fundamental meaning, since it means the most successful moment from a psychological point of view;
- there is a general trend of downward movement since the last intersection of the lines relative to the current one.
Target profit – 10 points, set a stop-loss at a distance of 10-30 points. When the goal is reached, we fix the 50% of the transaction, the rest is insured at the breakeven level by trailing.
How to open a short position:
- There is high volatility in the market. Damiani Volatmetr shows the divergence of lines: Green and Gray lines diverged for a relatively long distance and did not converge for a long time;
- in the afternoon (about 17-18.00 EET) the intersection of the Green and Gray lines occurs;
- there is a general upward trend from the moment the lines crossed past in relation to the current one.
At the next candle open a deal. The trend correction indicator can be supplemented with Fibonacci levels or an additional filter. Positions are opened infrequently, although, if not tied to the time frame of the moment of crossing lines, the strategy may be more effective, but with increasing levels of risk. There are questions – ask them in the comments!