Top Forex Analysis Tools Every Forex Trader Should Have

Whether you are a newbie or a seasoned trader, forex trading and analysis tools come in handy in tackling the challenges of forex trade. Your trading tools should be instrumental in determining your entry and exit points.

Forex analysis tools are free and can be assessed in the financial and forex review websites. However, you can obtain and pay for premium tools through subscriptions. Trading tools interests both fundamental and technical analysts. Tools provide you with clues on whether to buy or sell.

Technical Indicators

Technical indicators include charts that indicate market trends. Technical indicators are of two types: overlays and oscillators. An overlay is a technical tool that overlays another currency pair over another for comparisons as regards price movements. Oscillators measure momentum by comparing closing prices over time.

It is prudent to familiarity yourself with their mode of operation before coming up with a trading strategy. Here, you choose what works best for you after looking at chart patterns. You can also incorporate the technical indicators into an automated system.

Here are some of the most used tools:

Relative Strength Index (RSI)

RSI denotes both price gains and losses. It indicates both overbought (above 70) and oversold (below 30). In addition, RSI indicates support and resistance levels, as well as divergence.

Stochastic Oscillator

Stochastic Oscillator measures current price with the price range over some time. It measures overbought and oversold. If the value is above 80 it is overbought while levels below 20 signify oversold.

Moving Average Convergence Divergence (MACD)

MACD indicates the trend direction and the momentum of the trend. It also presents trade signals. MACD has two lines: signal line and MACD line. A MACD above zero signals an upward rise in profits while a below zero MACD indicates falling prices. You watch for the MACD line to rise above the signal line to buy. If the MACD line is below the signal line, it’s not advisable to buy.

Average Directional Index (ADX)

ADX measures the momentum of a trend. ADX above 40 signifies a strong trend whereas a below 20 trend is considered weak. ADX works together with two additional lines DI+ and DI-. DI+ is colored red and DI- is green.

On-Balance-Volume (OBV)

OBV measures positive and negative volumes on a day and is subtracted from the indicator based on high and low price levels. A rising OBV signifies that buyers are willing to buy and in effect push the price higher. Falling OBV indicates high selling volumes which indicate lower prices.

Free Trading Tools

Economic news calendars review interest rate and market expectations which affects the world currencies. The calendars are offered by forex brokers and financial news websites and list future economic releases of a country’s unemployment rate.

Pip Calculator Tool

Pip calculator signals the pip value of a specified currency.  A pip is the least trading unit of a currency pair. A trader needs to key in the currency pair and other parameters while the pip calculator works out the value of each currency.

Currency Correlation Tool

The tool computes the correlation of each currency to all other currencies and the results coded in intervals. The codes are multi-colored to suggest all extremes, for example, red signifies perfect inverse correlation whereas, blue signals positive correlation.

Broker Spread Comparison Tool

Web selecting a broker, you consider the spread to found out whether the broker is maximizing warnings at your expense. A tight spread means a trader can execute trades at better terms, unlike wide spreads which increase the cost of trading.

The spread comparison tool enables you to determine the spreads that brokers employ on major currencies. With this information, you can be able to choose a good broker.

The Bottom Line

Most forex analysis tools are available and can be downloaded from informative and developers’ websites. Nevertheless, take note that these tools only assist you in making decisions and are therefore not an end in themselves.

Consequently, you need sufficient forex trading experience and knowledge of the markets. It means that you are only incorporating these tools into your plans. Nevertheless, before trying out any tool, make use of the demo accounts to test their efficacy.