A successful trader isn’t someone who magically predicts the next move of the price. Because no matter how experienced you are, you’ll never know for sure what will happen next. A profitable currency trader is resourceful before anything else.
This means finding and mastering tools for Forex trading that will help through the tough decision-making and offer several solutions in any scenario. Today we discuss the most popular and effective Forex trader tools in 2020.
How to find trading opportunities on Forex
The very first question a new trader asks is: how do I know when to trade? In other words, how do you evaluate the market conditions and find promising opportunities? The good news is that there is a virtually unlimited number of ways to scan for trading possibilities. But in order to be consistently successful you will need to go through a slightly time-consuming selection process and then learn to use your preferable set of tools Forex like a pro.
So, where do you begin? 2020 is a very eventful year. Although the things happening around the world are not necessarily positive, there are tons of trading opportunities that pour into the market. For expert traders this is a chance to become more profitable and adopt new techniques and strategies. And for the new traders, 2020 is an ideal year to get started.
The very first thing is, of course, getting yourself familiar with the general idea of how currency trading works. Once you’ve settled on the broker, check out what educational materials they’ve got to offer and take your time going through them. Don’t worry if the loads of data don’t seem to sink in properly, simply focus on getting the feel of the whole thing. Once you actually begin trading, all the complex concepts will become more clear.
Speaking of brokers, choosing the right one for you can mean a lot both in terms of secure financial transactions and the selection of trading tools Forex. As a rule of thumb, brokers who have been around for a while and cater to traders from different sides of the world as well as different professional backgrounds, are the ones to go with. The wider the demographics of a broker, the more trading solutions and tools for trades they’ll provide.
Your broker will also be the one giving you access to the trading platform, a central hub for most of the trading tools you will ever use on Forex. Logically, your next step on the search for the right tools for Forex trading is to perfect your knowledge of the terminal you’ll be using.
The importance of the trading platform for Forex
A trading platform on Forex is the most important one of all Forex trader tools out there. The platform is where everything happens: from market analysis and strategy development to actual trading and profit collection. Currently, there are a lot of platforms available, but the chances are, your broker will give you access to the most popular one, Metatrader 4.
Metatrader 4, or MT4 for short, is an ultimate tool Forex solution. MT4 is technologically advanced to satisfy even the most picky trader and at the same time is extremely easy to navigate and adjust.
Of course, just like all other tools of the trades process, Metatrader will require some getting used to time. Start by downloading the terminal to your PC and give it a quick look around. Get a copy of the user manual to simplify the process of getting familiar with the platform. As already mentioned, navigating MT4 is very straightforward, but you need to make sure you are completely comfortable using it, before you start.
Once the familiarization process with the platform is out of the way, it is time to put it to work. Which brings us to the defining stage of any trader’s career: choosing the right Forex trading strategy.
Forex trading strategy
Although the trading strategy isn’t technically one of the trading tools Forex, picking one or two early in the process will help you a lot. A correctly chosen trading method will dictate both the steps towards opening trades and the tools you will require in the process.
Trading strategies can vary based on many factors. Some methods focus around a specific trading style, for example scalping or position trading. Others can be applicable for several styles, but call for the implementation of specific instruments (currency pairs) or tools of the trade process, such as trading indicators.
In order to choose a trading strategy that fits your preferences, you will need to have a solid understanding of how the Forex market works and how you can place yourself into its environments. Evaluate things such as the amount of time you have for trading, the resources currently available to you and so on.
Finding a strategy that works perfectly is a challenging process, but at the same time very rewarding. Once you’ve settled on a strategy that seems to be effective, you can use it for a long time.
Having trouble finding a strategy that is just right? Create one yourself! As we go further down discovering different Forex trader tools, you will see that there are not a lot of limitations to how you can use them in your own trading process. Successful currency trading is very individual based, meaning that you can use tools and strategies however you wish to, as long as you are profitable.
Next, let’s get a little more specific and talk about the exact ways traders can look at the market and find optimistic trading opportunities.
Technical analysis for Forex trading
A true Forex professional knows that the foundation of your success in currency trading is market analysis. Looking at what is currently happening, comparing it to the events in the past and building your predictions on what will take place next is essentially what trading is about.
This is explained by the simple fact that everything on Forex happens for a reason. The challenge is to correctly identify that reason, using the tools Forex market can be analyzed with. One of the approaches to scanning the market for profitable opportunities is technical analysis.
Technical analysis of the Forex market is built on the idea that all the information you need is coded into the price of each particular asset. The price of the currency in relation to the other currency is a clear indicator of the relationship between them as well as the overall mood towards the pair. For example, when USD grows less valuable compared to EUR it shows that more traders are putting their trust in the European currency and therefore it will most likely keep going up.
However, while in theory technical analysis sounds very uncomplicated, it still calls for some knowledge and skills. There are different aspects that contribute to technical analysis on Forex, getting familiar with all of them at once might not be possible, but getting a general idea might be helpful.
One of the largest tool Forex categories in terms of technical analysis is trading indicators. Indicators are used extensively during the analytical stage as well as throughout the trading process itself. Let’s take a closer look at what trading with indicators can look like.
As we have already established the concept behind technical analysis, trading indicators will make a lot of sense. Each indicator is designed to extract specific information from the chart and calculate required ratios and readings.
Some traders are simple, others are simplex. Most indicators will add elements to the chart to show the desired data more vividly. The visualization can appear as a few extra lines or a detailed additional graph. Whatever it is, your job is to get to know the meaning behind each element and learn to interpret those meanings for your trades.
Choosing the indicator tool for trades largely depends on your style and strategy. Indicators can be virtually divided into four categories: trend, momentum, volatility and volume. Usually, a trader can build a complete picture using just one or two indicators. However, it is also right to experiment with trading indicator tools for Forex from each category and try combining their data together in different variations.
An average trader uses up to five different indicators during analysis, just not at the same time. Applying too many indicators on the same chart can interfere with the operation and result in faulty data. That’s why it can be crucial to do several trial runs of your chosen indicators working together before using them in trading.
Metatrader 4 offers a self-sufficient package of indicators, although there is also an option to add indicators sourced from elsewhere. Expert traders often come up with their own strategies for trading and even design specific indicators to satisfy their requirements. Then these strategies and custom indicators are either shared for free or sold online. The most important thing in downloading indicators and adding them to your MT4 is to be entirely confident about the safety of the source.
Next, let’s talk about especially designed calculators that help traders make a correct decision.
Calculating trading profits and losses with Forex calculators
Another section of helpful Forex tools of the trades process are calculators. These often operate online and can be used for a number of purposes. The main idea behind most calculators, however, is to help traders choose the correct position size during trading.
Based on the significance of each new position, a trader is facing a different rate of risk. And the higher this risk is, the more visible the losses are going to be. On the other hand, Forex calculators are also capable of projecting your potential gains, which can boost motivation and help think more positively.
One of the most used calculators in currency trading is a leverage calculator. Leverage can be an extremely helpful tool for Forex traders with any level of experience. It works as a supportive element that increases the chances of big profits by increasing the size of a particular position.
When using leverage, traders can choose to what extent they need to enlarge their position in order to achieve a specific goal. The leverage calculator can suggest a ratio that will be comfortable in the programmed scenario. Comfortable in this case would mean that in case of the effective turnout your gain is going to be significant enough, and at the same time the losses won’t be too painful if things don’t work out.
In case you cannot find the correct calculator, bear in mind that most of them are built on simple mathematical formulas. This means that you can easily calculate any required ratio or percentage on your own. Of course, the calculator will give you the answer much faster, but the result will be the same, provided you’re good at math.
It is now time to move one to another large side of the Forex market analysis and learn about the most effective tools for trades, associated with it.
Fundamental analysis of the Forex market
Technical analysis is centered around whatever happens at the market itself, such as trends, waves of volume, price fluctuations and so on. And fundamental analysis looks at the factors outside Forex that have a certain level of influence on it.
For example an election in the US can affect the foreign exchange rate depending on the result. This is due to the fact that any participating candidate has their own views on international politics, economy and so on. Based on who runs the office, the value of the currency can change. Same is applicable to most types of social and corporate events.
The tricky part of choosing the right tools for Forex trading using fundamental analysis is picking the correct data to work with. Because, fundamental analysis is essentially a subjective interpretation of facts, it can bring different results depending on who is looking.
For the same reason, fundamental analysis is normally considered to be more complex than the technical one. Before starting to trade on news, you should master reading and analyzing charts and have at least a general understanding of how various currencies are affected by non Forex related factors.
Luckily, there are ways to simplify the life of fundamental analysis. This brings us to another category of tools of the trading: Forex calendars.
Forex calendars: economic, political and corporate
Every trader has a set of instruments they prefer. Currency pairs can be divided into major, minor and exotic. Major pairs include the most economically significant government’s currencies, such as the United States of America, European Union, Great Britain or Japan. The reason behind their importance is both the economical and political influences as well as the amount of attention they get.
This attention is accumulated simply by the amount of traders who choose the particular currency to trade. Trading major pairs is strongly associated with high volatility and volume that in turn guarantee that the price will be actively changing, providing plenty opportunities for profit.
By the same logic, minor pairs are the ones that get less attention, although most of them include giants like EUR or GBP. Some popular minor pairs are EUR/CAD, CHF/JPY and GBP/AUD. And exotic pairs are the ones that either get traded in small amounts or include unpopular currencies. For example, EUR/TRY (Turkish lira), USD/SEK (Swedish krona) or USD/MXN (Mexican peso).
You might ask if these pairs are not that popular among traders, why trade them at all? There is one simple answer. Although pairs like USD/MXN don’t reach the same volumes as USD/EUR, they do get their spots in the sun during specific hours. For example, MXN will most likely be traded by Mexican traders who have practical interest in the currency. For traders elsewhere, who would like to trade USD/MXN it will be important to look out for when the activity rises and enter the trading process then.
Apart from the exact time when to trade Forex, traders have to look at the season and date as well. That’s when the calendars come in handy. Forex economic calendar is an interactive tool, provided by your broker that gathers most scheduled events, such as data reports by big corporations, political elections and more. The calendar will not only include the exact date and time, but also give you an idea of how each event might play out in the market.
And once you settle with a specific currency pair, you can filter out the events to keep an eye on. For example, EUR is mostly affected by the German economy, that’s why you will want to focus on corporate events of local economy contributors. The longer you analyze the fundamentals of the same instrument, the better you will get to understand it. Most currencies tend to run in patterns, which means that when you learn to catch their rhythm, you’ll become very successful and profitable.
But how about the events that were not scheduled? The greatest market disrupter of 2020, the COVID-19 pandemic, was not expected by anyone, yet it changed the history of humanity in general and the way markets operate forever. That’s where you need to polish off the skill of live Forex news trading. And there is a very broad selection of tools for this.
Trading live news on Forex
We are getting into a tricky area here. Fundamental analysis is already complicated enough, but it still gives you an opportunity to take your time. In live news Forex trading, on the other hand, you’ve got to think on the spot. Which means you will require some of the best trading tools Forex.
Your first instinct might be to select several news resources online and follow them religiously, trying to outline trading opportunities in every single announcement. Although this might seem logical, it is kind of a dead end. Mostly because modern media pours tons of new information over us every second. Navigating in an entire sea of news is practically impossible.
What you need to look for instead are info portals that select the news announcements that are either relevant or potentially relevant to the foreign exchange market. The majority of such services will also provide moderate to in-depth analytics and suggestions on what position you can consider taking in the light of particular live news.
Chances are, your broker has a fundamental analysis blog that covers all of the note-worthy events that concern major currency pairs. The fundamental analysts behind these blogs are often professional traders or economy experts. This means that their advice is not based on the blind trend following, but rather on years of consecutive analysis of the same instrument.
Using a daily fundamental analysis report from your broker is ideal for live news trading since it saves you a lot of time. And even if you prefer to run your own market analysis, checking out a professional’s opinion can’t hurt.
We’ve already discussed two main categories of Forex market analysis. But there is also another kind, that concerns both technical and fundamental sides. It is called the analysis of market sentiment.
Forex market sentiment analysis
Forex sentiment, just like on any other market, is a direct reflection of how the majority feels. Of course, we are not talking about the emotional health of traders. Sentiment analysis evaluates the expectations towards each particular currency from the perspective of how many traders are going long on it, and how many — short.
We’ve previously established that the more attention the currency gets, the higher are the chances to profit from it. The fluctuations in value are caused by two opposite camps of traders: bulls and bears. Bulls believe that the currency will continue raising in price and therefore, invest in it, while bears act in the opposite direction.
There are several ways to get a feel of the sentiment, including especially designed tools of the trade. Perhaps the easiest way to start comprehending sentiment is by learning to read candlestick charts. Every candle expresses the current situation in the selected time period through four factors: opening price, closing price, the highest and the lowest values.
Based on the length, the color and the wick significance of each candle, we can usually get a general understanding of how the majority of traders felt during this period. It is very straightforward: the majority wins. So, if most traders went bullish, it will be reflected in a visibly-long green candle with relatively short wicks.
Then there are the special tools for Forex trading using market sentiment. Although they are not usually designed to show traders the most optimal path, referring to them once in a while can be a good idea in the long run.
Forex correlation matrix
Correlation matrix on Forex is a trading tool that indicates historical relationship between currency pairs. Some currencies depend on one another and it often results in them moving in sync across the chart. The range of correlation goes from negative 100% to positive 100%. The closer the negative meaning is to a hundred, the more it means that those currencies’ values progress in the opposite direction. And vice versa: when the indication has a plus sign, it means that these pairs are moving in the same direction.
There are two main reasons to keep an eye on correlation. First, understanding how currency pairs interact with each other will give you an insight on effective risk management solutions. Every professional trader knows that no matter how well you know your regular set of instruments, and how much profit they bring you, there are always should be some backup options. It’s just the simple rule of not putting all eggs in one basket.
Another reason is sourcing trading opportunities. Currency pair correlations do tend to stay around the same, but there are also times when the percentage changes drastically. This would be a great opportunity to revise your current strategy and implement new techniques appropriate to the updated correlation.
A similar to the correlation matrix tool for Forex is the heat map. It can also be used to step back and get a fuller picture of the entire market before making a trading-related decision.
Forex market heat map
Very often traders get so fixated on their preferred currency pair or a specific time period, that they miss out on larger opportunities. That’s why it can be very useful to practice widening your horizons. In technical analysis this can be done by “zooming” in and out on different time frames. For example, if you don’t normally get out of daily charts, try taking a look at the monthly graph. There can be bigger trends going that are not visible on short term charts.
And for fundamental analysis mixed with sentiment analysis, there are heat maps: tools for Forex trading that represent the areas that are currently getting the most attention. Such maps can be used on both foreign exchange and stock markets. Every instrument is showcased in a slot on the table, with the fluctuations dynamic (positive or negative) and current value.
By seeing the most popular instruments at the same time, a trader can decide to switch focus to another currency pair. Of course, a heat map is just a supportive tool for trades, meaning that you can’t use it for strategizing directly. This is more of an idea pool for traders, which is just an initial stage for trading. Once you decide to pay more attention to a new pair, you will still need to perform market analysis to know what to do next.
Speaking of sourcing new ideas for your Forex trades, market analysis, heat maps and correlation matrices aren’t the only handy tools you can use. Next, we are going to talk about getting in touch with the Forex trading community to diversify your techniques and tactics.
Forex trading ideas from other traders
Ever since Forex trading went online, the social interactions among trades got cut to the minimum. But being a part of a trading community can sometimes be beneficial. Here’s why.
There are approximately ten million active Forex traders worldwide. Active traders are the ones that are currently invested in the market, so this number doesn’t include those who stopped trading for whatever reason, but still have knowledge and experience to share. A certain percentage of both active and inactive traders are bloggers who made it their job to educate newcomers and create innovative approaches to currency trading.
So, what’s in it for you? Well, when you are in the very beginning of your Forex journey, getting in touch with experienced traders can help you learn faster. Listen to insightful advice, participate in webinars and quizzes: whatever works for you. This type of interaction might assist you with getting realistic expectations on what Forex trading might be like. Plus, there is always a word around when new effective Forex trader tools surface.
However, actively participating in the trading-related discussion also has a downside. There are a lot of scammers online, and by definition they always gather around industries that involve money. Non-genuine market experts might offer a whole selection of fake or faulty services, including: trading signals, referrals to shady brokers, links to pirate exchange platforms and so on.
This means that before you go on and follow an advice you found online, and this is applicable to pretty much any other area, not just Forex: triple check the source. Ask your broker whether they have experiences dealing with a particular side or person before, look for reviews online or find alternative tools or services designed by more trustworthy sources. Always remember: safety first.
Demo account for Forex trading
As we are wrapping up our discussion of tools for Forex trading, it will make a lot of sense to mention a tool testing tool. The one thing all analysis types, trading strategies, tools and techniques have in common is that they don’t necessarily work for everyone. But it is also true, that you can’t judge on their effectiveness, unless you tried them out yourself.
The go-to solution is often associated with depositing a small amount of money and using it to practice trading and test the newly obtained knowledge. However, as you can imagine, there isn’t an awful lot of wiggle room in there: a small deposit can be burnt through very fast, before you had a chance to explore everything you wanted to.
This is where demo accounts get to shine. A demo account for Forex trading is an ultimate tool for trades practicing. Demo simulates a live trading account, including all available functions and instruments. There is going to only be one difference: you won’t risk any money dealing in demo.
So, if you are looking for a safe space where you can get used to the trading platform, try out new tools for Forex trading, test or develop a strategy: demo is a place to go. Take your time pressing all the buttons, adjusting the charts to your liking and simulating trades. Since no real money is involved, there is no need to stress and panic. Although it is also worth mentioning that sometimes you can artificially adjust your level of confidence, because risk management techniques can be worked out through a demo account as well.
A summary of most effective trading tools for Forex
The trading tools for Forex will be defined by what kind of trader you are, which means before you go looking for tools, start by learning as much as possible. The truth about the foreign exchange market is that absolutely anyone can be successful in it. Only reason why the statistical profitability rates are so low, is because a lot of people start trading without doing their research first.
But as long as you don’t treat the matter lightly and invest an appropriate amount of time into getting familiar with what currency trading is all about, you’ll be just fine. Remember, that there are always channels to source help, whether it is advice from your broker, a strategy collection you found online or any of the tools for Forex trading described here today.