Forex trading is a risky business, and without the right tools, you could end up losing a lot of money. The key to success in foreign currency trading is to not only understand how the markets work but also to use the right and the best tools available in the market to develop strategies that work. Every forex trader relies on certain tools to determine which position is profitable to him or her.
The choice of tools for forex trading, therefore, plays an important role in determining your success as a forex trader. Whether you are new or an experienced currency trader, here are a few trading tools you should select to earn profit with currency trading.
Currency Converter
This is one of the basic tools you need for forex trading. In fact, this is the most important tool that allows you to know which currency is gaining and which is losing in the market. Select a good currency converter that gives you detailed rates for currency conversion and alerts you when the conversion rate for a particular currency pair reaches a set target. That way, you won’t miss an opportunity to place profitable trades without taking big risks that lead you to losses.
Forex Signals
Understanding forex signals and interpreting them accurately is a skill that every forex trader must develop. Forex signals are among the most powerful tools that you can use for trading currencies. How you use them determines whether you will incur losses or earn profits. Forex brokers provide automated forex signal service for their clients, enabling them to place the profitable trades. These automated signals are usually sent by a software program designed to understand market fluctuations. They also include detailed descriptions of currency movements, and indicate stop loss, limit etc that the trader need to know when trading a particular currency.
Professional Charts
Not all forex traders are comfortable with automated forex signals. If you are one among them, then you must master the science of reading charts to know what trades to place and what to avoid. Professional charts give you all the information you need regarding the currency pair you want to trade and also the markets as they change. Charts can be categorized based on the timeframe and the type of graphs used for representing the trends.
Besides live charts, historical currency rate charts can also help you understand the behavior pattern and trends for a particular currency pair. Some charts give you rates dating back to a few days and months, while others give you data from as back as a year or more.
In addition to these, you can also use profit calculators and other custom forex trading tools and software that your forex broker provides to you.
Forex Education – Terminology Review
None of the above mentioned tools will be of any use to you without proper forex education. Before you get started with trading, you must learn the ABC of forex trading. That is to say, you have to learn and understand the different terms used in the forex market. Getting a hang of the terms used in trading might be difficult if you have no experience whatsoever in trading. But if you have traded equities and are familiar with trading terms, understanding forex terminology won’t take long.
The first step is to understand the terms, and only after you successfully complete that should you contemplate proceeding further.
Forex Articles, Blogs and Forex Brokers Reviews
You may have just started trading currencies, or you may have been doing it for years. Regardless of your experience, continuous forex education is essential if you want to make profit and even know how and when to use the charts and other trading tools. So keep yourself updated with the latest market information, but don’t let it get to you. Analyzing the markets too much or reacting to every piece of news about the currency or the market can be hazardous to your forex trading career. At the same time, ignoring important news is also a bad idea.
A successful forex trader maintains the perfect balance when it comes to using market information and depends on the current trends, news and also the historical performance of the currency pair to make trade decisions.
Trading Platforms
Advanced trading platforms like MetaTrader 4 and 5 (MT4/5) by MetaQuotes let traders enter orders and offer many features for analyzing the forex market in real time.
Charting Software
Most advanced forex trading platforms provide real time charting services, although you can also obtain charting software elsewhere.
Economic Calendar
An economic calendar lists the time and date of important economic data that can affect currency pairs when released. The data includes employment and inflation numbers, gross domestic product (GDP) and central bank meeting dates.
Pip Calculator
A pip calculator takes into account the size of your trading position, the currency pair you are trading, the exchange rate, and the leverage you are using. By inputting these values into the calculator, it instantly calculates the value of one pip in your account currency.
A pip calculator is particularly useful because it helps traders determine the risk and reward potential of a trade. By knowing the value of a pip, traders can calculate their potential profit or loss based on their desired entry and exit levels.
Financial News Wire
News can significantly affect the direction of exchange rates. A premium financial news wire gives traders timely access to information that might affect the forex market.
Trade Journal
Keeping a trade journal gives you valuable insight into both your losing and winning trades. Some companies provide software designed just for this purpose.
Copy Trading Service
Copy trading involves selecting an experienced trader to duplicate their trades in your account. Some brokers like eToro offer this service.
Currency Correlation Matrix
Correlation measures how one currency pair’s exchange rate changes relative to the exchange rate of another currency pair. A set of correlations comprise a currency correlation matrix, which lets you visualize the interconnectedness of currency pair exchange rate movements.
Time Zone Converter
Certain trading sessions and times are better than others for trading specific currency pairs with respect to liquidity, volatility and trading volume, so knowing what those times are in your local time zone can be extremely important to forex traders.
Forex Volatility Calculator
A volatility calculator takes a currency pair’s historical exchange rate data and determines the historical volatility in real time for various different time frames. The historical volatility of a currency pair gives a trader an idea of the risk involved in trading that particular currency pair.
Frequently Asked Trading Tools Questions
What Should I Consider When Choosing Forex Trading Tools?
If you are thinking of buying and selling currencies online, you need to choose a good forex trading software. When you do a simple Google search for it, you may come across thousands of results. Therefore, when searching for the best forex platform, choosing the best one for you can be time-consuming. After all; you need to consider many factors such as supported currency pairs, commissions, minimum account balances, and regulation.
How to Use Forex Chart Software?
Forex charting software, one of the most preferred fx experience tools, provides users with a graphical interface that shows the movements in the value of currency pairs over a period of time. It can contain bar charts, line charts, among others for the user, and a lot of additional information to aid their technical analysis. This data helps a trader identify the most advantageous trading pairs and timeframes along with entry and exit points.
How Do I Find Best Trading Tools Forex Charts?
Best trading tools for day traders are easily found online through financial portals, online brokerage platforms, or sites specializing in forex information..
Summary
Most of the trading tools examined in this article can be freely obtained online, some of them via forex brokers and news outlet websites, while others can be downloaded from a developer’s website like MetaTrader 4.
Trading consistently and profitability in the forex market can be a challenging endeavor, and the fact remains that most retail traders tend to lose money in the market.
Nevertheless, with a comprehensive trading plan, the proper forex trading tools, and sufficient knowledge of the currency market, your chances of success as a forex trader can be significantly improved.
