Choosing the right
Volatility Index for you
Duration
3
minutes
Selecting the appropriate Volatility Index is crucial for your trading success. Each index
has its unique characteristics and risk profiles, catering to different trading preferences
and strategies. This lesson will guide you through the process of choosing the right
Volatility Index based on your trading goals, experience, and risk tolerance.
Understanding the Different Volatility Indices
To make an informed decision, it’s essential to familiarize yourself with the various
Volatility Indices available on Deriv. Here are a few popular ones:
1. Volatility 75 Index: Known for its volatility of 75%, this index often sees rapid
price fluctuations. It’s well-suited for experienced traders looking to capitalize on
significant market moves.
2. Volatility 100 Index: This index boasts the highest volatility at 100%, providing
substantial price movements. It is a good option for high-risk traders seeking to
engage in rapid trades for potentially larger gains.
3. Volatility 50 Index: The Volatility 50 Index offers a balanced option for traders
looking for moderate volatility. This index is a good starting point for both
beginners and those who desire some movement while keeping their risk lower.
4. Volatility 10 Index: With the lowest volatility at 10%, the Volatility 10 Index is
designed for cautious traders. It provides a less turbulent trading experience and
is a good starting point for new traders who want to learn the fundamentals
without experiencing extreme market swings.
Assessing Your Trading Goals and Experience Level
Your decision on the right Volatility Index for you should be guided by your individual
trading goals and experience level. Here are some questions to consider:
What are your trading goals? Are you looking for high returns in a short time
frame, or do you prefer steady growth over a more extended period? High-
volatility indices like the Volatility 100 may provide rapid gains but come with
increased risk.
How experienced are you as a trader? If you’re a beginner, starting with less
volatile indices, such as the Volatility 10 Index, can help you build confidence and
understand market mechanics. Experienced traders may seek higher risk for
larger potential returns in indices like the Volatility 75 Index.
What is your risk tolerance? Assess how much risk you’re willing to take on. If
you’re more risk-averse, choose indices with lower volatility, which will allow for a
more stable trading environment.
Developing Your Trading Strategy Around Your Index
Choice
Once you have selected a suitable Volatility Index, you will want to tailor your trading
strategy accordingly. Here are some strategies aligned with different levels of volatility:
1. Scalping for High Volatility: If you choose to trade the Volatility 100 Index,
consider scalping techniques, where you make multiple trades in a short time
frame to benefit from small price movements.
2. Swing Trading for Moderate Volatility: For the Volatility 50 Index, swing trading
can be effective. This method allows you to hold positions for several days,
targeting medium-term price fluctuations.
3. Long-Term Positioning for Low Volatility: When trading the Volatility 10 Index,
consider adopting a long-term view. This approach enables you to capitalize on
gradual price movements while limiting exposure to sudden market shifts.
Continuous Evaluation and Adaptation
Trading conditions and market dynamics can change rapidly. It’s essential to
continuously evaluate your chosen Volatility Index and adjust your strategies
accordingly. Regularly reviewing your trading performance, market conditions, and
financial goals will allow you to adapt effectively. Furthermore, using a demo account
can help you experiment with different indices without risking real capital.
Quiz
Which of these Volatility Indices is most suitable for new traders?
?
Volatility 75 Index
?
Volatility 50 Index
?
Volatility 10 Index
What defines the Volatility 100 Index?
?
It has a volatility of 100% and offers rapid price changes.
?
It is suitable for long-term investments with minimal risk.
?
It guarantees consistent returns regardless of market conditions.
When would a trader choose to use swing trading strategies?
?
When trading highly volatile indices.
?
When trading lower volatility indices with moderate price movements.
?
When looking for immediate returns on each trade.
