Essential 5 tools to use in Forex trading

Last Updated: 20/03/2021

For those who have dabbled in the forex market, you obviously know of a few items or inputs that make traders successful and consistent in the long run. These factors include risk management, experience, knowledge and of course a little bit of luck. However, the tools at the disposal of a trader will help shape a trader’s success in trading. Whether it is obtaining the latest news, notifications or even market analysis, having the right tool for the right job will give you an edge in the market. This article will share the “must have forex trading tools” that every trader whether a newbie or an experienced trader must have!! Have a look a the best online broker review as well as the top trading platform article for more information.

  1. Charting tools

You may not be a technical trader, but having a good charting tool is essential in identifying trends, market sentiments, and patterns. A good charting software should have a number of technical indicators, among them, stochastic oscillator, RSI, MACD, and accumulation/distribution. These indicators help a trader identify the strength of a trend as well as market sentiments. It should also let you study patterns by availing indicators such as the moving averages and the Bollinger bands. If you have already picked a broker, this part will be easy for you since most brokers will partner with third-party providers of such resources. MT4 and MT5 are among the best and most popular charting tools provided by third parties.

  1. The economic calendar

The forex market is often driven by macroeconomic factors such as data and news releases. Most of these economic events are issued periodically, monthly, quarterly or perhaps weekly. The release dates are predetermined and are the basis on which the economic calendar operates. Whether you are a technical or sentimental trader, keeping a close watch of the economic calendar is very crucial. As far as the market is concerned, different economic events have different impacts on different currencies. Economic events are classified into three distinct clusters based on the impact the news has on the market; they are high impact, medium impact, and low impact news. To the fundamental traders, keeping an eye on the economic calendar is the only way to be profitable. Economic events such as the NFP, unemployment records and oil deposits reports are all examples high impact news.

  1. Price alerts

Price alerts are simple notifications sent to you when prices go above or below a certain level for specific forex pairs of choice. Any technical trader would need this; they can help him know the time to exit or enter a trade. A trader is able to monitor key levels such as those of support and resistance without the need of being active on the charts. These notifications may be configured to come via SMS, mail or even through a mobile app. A number of good brokers will offer price alerts service to their customers; however, if your broker doesn’t provide, there are tons of great price alerts available online

  1. Financial news-wire access

In addition to the economic news calendar, you may need a financial news source. You will need to work with reputable news outlets such as the Bloomberg, the Wall street journal, Reuters, Market watch or even the financial times. Interest rates of different countries have a significant impact on currency valuations; accessing central banks updates on a timely basis keeps the trader on the right foot. Policy statements, speeches and press conferences affecting the forex market are immediately published in these sites. Other information you may get from the above news outlets include political environment affecting trades, adverse geological events, as well as the state of key natural resources like oil.

  1. The forex volatility calculator

Traders will thrive when the volatility is high; a quiet market offers no opportunity to make gains. Forex traders should be able to know the currency pair that is volatile, and the time of the day when the volatility levels are high. With close to a hundred pairs to trade, calculating the volatility for each pair is a very tasking job. A forex volatility tool will do the calculations over a number of currencies using historical data. The calculator can then display the information in the form of a graph, indicating a daily change in percentages and even in pips.

It is worth noting that most of the tools discussed above are offered freely over the internet while others come with your broker, others like the MT4 can be downloaded free from the developer’s site. Trading and winning consistently is quite a challenging endeavor, and in fact most traders lose money. However, to be a winning trader, you will need more than just the tools discussed above. Being a successful trader is more about yourself that is your attitude, your personality, your learning speed and how fast you adapt to changes around you.

To put all these factors about yourself in check, you may need one more tool not discussed so far, a trading journal. A trading journal accelerates your learning curve and keeps your emotions in check. The trading journal maintains the history of transactions including the reason for entering or exiting deals. It also contains your trading strategy and conditions to be met before entering or exiting a deal. A trading journal will act as a basis on which you can automate your strategy. Having the right or even the latest forex tools does not in itself guarantee a trader some positive gains in FX. These tools are just meant to augment the decision making of traders, not to replace them. Check out the Best Forex brokers section to get further insights as to how your broker may be able to support your trading approach and if you are based in Europe, we also profile leading London UK brokers.