December 9, 2008
Forex trading ranges have exploded over the past few months. The daily average trading range has doubled for all of the actively traded currency pairs in 2008, with some currency pairs even seeing a 200% rise in their average daily range.
However the big explosion in volatility has actually happened in the past 9 weeks. EUR/GBP, USD/CAD and the AUD/USD have seen the largest increases to their average daily range, but the range for the EUR/USD and GBP/USD has also increased materially.
More specifically, in 2007, the EUR/USD had an average daily range of 84 pips. Since October, its average daily range has been 267 pips, a more than 300 point rise.
Understanding trading ranges is very important because it plays a big role in developing effective money management strategies. I explore this concept in more detail in the second edition of Day Trading & Swing Trading the Currency Market.
EUR/GBP which use to known as one the range trading currency pairs saw its average daily trading range increase from 36 pips in 2007 to 142 pips since October, a whopping 400 percent rise. Say goodbye to the days of the hiding in low volatility of EUR/GBP because it is currency pair that has seen the largest expansion in volatility.