Best Tools for Technical Analysis Used by Forex Traders
Trading in the forex market requires a good understanding of the fundamental and technical trading concepts. Finding some profitable trading opportunities in the volatile currency market is not an easy task. For this, a trader needs to possess analytical skills at its finest. Fundamental analysis can help for taking long term trade positions but short term trading plans have to be executed with careful technical analysis of the market situation. So, forex traders use some tools to help them with this technical analysis with a price chart. Today we will give you a brief introduction to these popular technical analysis tools that every trader should know about.
1. Forex Volatility Tools
Volatility is the key characteristic of the currency market. Hence a tool to measure this volatility is a must for planning and executing trades with perfection. A volatility tool can’t really predict the direction in which a currency pair’s price will move. But it can say how volatile a currency pair is and to what extent the price may change within the specified time frame. A volatility tool can measure and tell you the volatility of a particular pair in an hour or in a day. It can do this for each week and each month based on what the trader is looking for.
2. Session Highlighter
Since the forex market is accessed by traders from all parts of the world, the working hours of the market are divided into different sessions for each economic zone. This allows traders to catch good trades in different trading sessions. And a session highlighter is a tool that shows the price action and movements that took place between two different trading sessions by minute and by hour. This is surely a useful tool for technical analysis. The session highlighter will automatically draw a line on the chart every time a major trading session starts or ends. Traders can also use different colours to highlight different sessions.
3. Technical Indicators
Technical indicators are one of the most favourite trading tools for the majority of traders. They can simply add these indicators to the charts and it will give them a clearer picture of the current market scenario. They will be able to plan their trades in accordance with the values that are formed by these indicators using mathematical tools. There are many indicators like RSI and SMA that are simple and beginner-friendly. But complex and advanced indicators like fibonacci retracements are also getting popular among forex traders.
4. Forex Correlation Tool
Many currency pairs in the forex market are correlated with one another. And a tool to measure the correlation between different currency pairs is essential when you are trading with more than one currency pair. Pairs that are positively correlated will move in the same direction and the pairs that are negatively correlated will move in different directions. The correlation tool can only indicate the type of correlation but not the magnitude of change, for that you will have to use the volatility tool. Still as the correlation between pairs keeps changing, you need to keep measuring it over time using different time frames.
So, these are some of the most popular trading tools that are used by forex traders for technical analysis. But these are not the only tools that one can use. There are many more advanced technical tools that you can add to your toolkit based on your requirements. Still, beginners can start with a limited set of tools and practise with them to trade with ease.