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A career in foreign exchange trading (often referred to as currency trading or Forex trading) is an exciting prospect, though is often difficult to know where to begin.
With 2021 just around the corner, FP Market’s research team have joined forces and listed some of the must-have Forex trading tools.
Divided into two main categories, Forex trading tools are composed of analysis and infrastructural components. Analysis tools are further divided into sub-categories: technical analysis and fundamental analysis.
MT4 provides great functionality. Although established in 2005, it is still relevant heading into 2021. Despite MT5 boasting more functionality, MT4 requires less system resources. More importantly, MT4 is entrenched within the FX community and, for the majority of traders, is a household name. The maturity of MT4’s platform also brings with it a mature MT4 community. Access to this community is a must, a place overflowing with knowledge.
Many MT4 users automate trading strategies, creating Expert Advisors (EAs) known as trading robots. Another MT4 benefit is the abundance (more than 2,000 EAs) of EAs available for purchase or rent. A common complaint, however, is MT4’s EAs are not programmed to run on MT5, at least not without a fair amount of work involved.
Forex Calculator and Time Zone Converter
Another vital infrastructural tool is a pip calculator. A pip represents a 0.0001 change in an exchange rate (or 0.01 in a currency pair containing the Japanese yen [JPY]). A pip calculator allows traders to work out the pip value in the base currency to accurately monitor risk per trade.
Finally, a must-have infrastructural tool is a time zone converter. Major trading centers such as London and the US (New York) tend to witness an influx of liquidity. Monitoring the overlap between these two sessions is a key watch for many traders. According to a study, the most liquid time is 8 to 11 a.m. EST, which combines the most liquid European markets with those of the United States. It is prudent risk management to avoid markets during periods of low liquidity as higher volatility can arise amidst decreased liquidity, particularly on a short-term investment timeframe.
Forex Brokers: Technical Analysis Tools
Traders, particularly new traders, can become overwhelmed by the plethora of technical indicators and charting tools available with most online brokers.
Experienced traders often recommend adopting the KISS principle, as a chart can become congested with unnecessary tools and lead to analysis paralysis.
An indispensable technical tool for many traders are moving averages, an indicator smoothing price fluctuations and enabling trends to be easily defined. A number of different moving averages are available, including the Simple Moving Average (SMA) and Exponential Moving Average (EMA). The former calculates the average of price data, while the latter gives more weight to current pricing.
Another simple, yet must-have technical analysis tool, is the Relative Strength Index (RSI). The RSI, a momentum oscillator bounded between 0 and 100, is employed to measure price movement to determine overbought or oversold conditions, as well as divergence signals. Trading plans that include the RSI generally focus on short positions around overbought space (70.00), and long positions at oversold levels (30.00).
Fundamental Analysis Tools
Like the stock market, the Forex market responds to news flow, including economic indicators. For that reason, a necessary fundamental analysis tool is a real-time economic calendar. An economic calendar helps Forex traders track significant economic events, those containing central bank interest rate decisions, employment data, inflation metrics and growth data (GDP), for instance.
If the Bank of England (BoE) raises interest rates, GBP often strengthens. News affecting GDP growth for a particular country also tends to shake its currency, while upbeat US non-farm payrolls, an event indicating GDP growth is likely to accelerate, may lift the US dollar (USD).
FP Market’s In-depth Market Analysis
Whether you operate a live trading account or a demo account, or have an interest in the financial markets, FP Market’s research deserves a visit.
Our Traders Hub offers comprehensive fundamental and technical analysis research, using up-to-date trading tools on a number of key financial instruments, including major currency pairs. In addition, traders are free to access a broad selection of webinars and articles, created by industry experts.
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