Volatility in 2020
Every year I take a look at the average daily trading range of not only the various different currency pairs, but also a variety of other markets such as stock market indices, commodities and cryptocurrencies.
This is useful to know because it can tell you which markets currently have low volatility, and are therefore possibly worth avoiding from a trading perspective, and which markets are moving the most on a day to day basis and providing a lot more trading opportunities.
This information takes on greater significance in a year like this when we have had a major global pandemic wreaking havoc on the markets.
So as we are now nearly halfway through the year and starting to see economies return to some sort of normality, now is a great time to look at the ATR (average true range) of these markets (as of 15 June 2020) to see how they have each been affected:
AUD/NZD – 60
AUD/USD – 91
EUR/CHF – 57
EUR/GBP – 59
EUR/JPY – 99
EUR/USD – 78
GBP/JPY – 141
GBP/USD – 107
USD/CAD – 108
USD/CHF – 64
USD/JPY – 63
FTSE 100 – 143
DOW JONES – 635
S&P 500 – 67
NASDAQ – 210
BRENT CRUDE – 214
US CRUDE – 153
GOLD – 22
BITCOIN – 390
BITCOIN CASH – 11
ETHEREUM – 12
RIPPLE – 1
LITECOIN – 2
Currency Pairs
If we start with the currency pairs, it is not entirely clear just from these numbers, but volatility has slowly gone back to previous levels.
There was a big spike up in March and April for all of the major forex pairs as trading volumes surged and prices moved strongly in both directions as panic buying and selling hit the markets, but this volatility as since subsided as we enter the summer trading months, which are traditionally less volatile anyway.
Another surge in volatility cannot be ruled out, particularly if we see a second wave of infections and / or another series of lockdowns, but for now the major pairs are experiencing less daily movements than a few months ago.
The GBP/JPY is still one of the most popular pairs amongst traders with an average daily trading range of 141 pips, but the GBP/USD and USD/CAD are both good markets to day trade or swing trade with a daily movement in excess of 100 pips, and the EUR/JPY and AUD/USD are also fairly volatile right now as well.
Stock Market Indices
With regards to the major world markets, we have seen a much more pronounced upswing in volatility, which remains to this day.
The S&P 500 currently has a trading range of 67 points, which means that it is averaging a swing of more than 2% every day, while the Dow Jones has a staggering average trading range of 635 points, making it very popular with day traders.
Even the FTSE 100 is moving 143 points per day, whereas it would typically move a lot less than 100 points under normal market conditions.
So the indices are well worth considering for those short-term traders who want more movement or volatility than many of the forex pairs can offer.
(If we fast forward to 2023, we can see that 2020 was very much a golden year for day traders of stock market indices because as of June 2023, the S&P 500 was averaging 40 points per day (27 points less than 2020), while the Dow Jones, for example, now moves an average of 269 points compared to 635 points previously and the FTSE 100 index now moves an average of 58 points compared to 143 points in 2020).
Commodities
Many long-term investors turn to safe haven commodities when the market is dropping (or sell their existing gold holdings to invest into beaten up stocks). So it is no surprise that gold is now quite a high volatility market with an average range of 22 points.
Similarly, with the collapse of the oil price and the subsequent recovery as economies start to open up again, the volatility of the oil markets has gone up dramatically since the start of the year, although it has started to fall since the peak in March and April.
Cryptocurrencies
The major cryptocurrencies are notoriously unpredictable and will see spikes in volatility throughout the year, but these too have been affected by the global pandemic.
There was a big sell-off in March across the whole crypto sector which obviously led to a big increase in volatility, but there was another upward swing last month, and even now Bitcoin, for example, is still moving 390 points per day on average.
Of course this alone doesn’t make it a great day-trading instrument because spreads are still fairly large with most brokers, but it is still worth noting how much this market moves, even if you are a long-term buy and hold investor.
Closing Comments
2020 has been a very bad year for many long-term investors, but for short-term swing traders and day traders, it has provided plenty of opportunities with lots of wild price swings every day.
The markets have certainly calmed down a little, particularly the forex markets, but it is clear from the average daily trading range figures above that there is still more than enough volatility in the stock market indices, commodities and crypto markets for people to potentially make money.
If you are interested in day trading yourself, it is important to use a broker that has tight spreads and fast execution, and FXTM satisfies both of these criteria, with spreads starting from 0.1 points on ECN accounts and 0.5 points on Standard accounts.
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