A professional is only as good as their tools. A contractor can only build a house when their tools are sharp, a football player can practice only if his tackling dummy is there and a successful Forex trader will see bigger profits only when they’re using the best-quality forex tools. But what makes a good Forex trading tool? How can traders know which one is best for them?
The key to a good Forex tool isn’t that the tool works by itself, but that it works well with other tools you have. The tools should work as a team. That’s why we’ve found the 5 must-have forex tools for the successful Forex trader that not only work by themselves but combine together to form an unstoppable team.
Forex Tool #1: Get Your Journal Ready
Just like athletes spend time reviewing film of their performance after games, so should you spend time analyzing the trades you’ve made. You do this by journaling every pair you’ve identified, and every trade you’ve made. There are some online journals you can download, but we’ve found nothing beats good ole’ pen and paper.
It’s been proven that taking handwritten notes helps you remember things better than simply hearing or seeing them. Research shows handwriting notes is even better than typing. If you want to have a digital copy of your journal, then writing in Excel or a Google Sheet would work, but handwriting still is king.
Therefore, we recommend finding a notebook and a pen and creating a table for your trades. Have sections dedicated to the pair you’re trading, the time of day, your in, your stop-loss, where you eventually pulled out of the markets and your results. Keep this journal up-to-date for every trade you make. After a while, you’ll be able to see your trading trends. Use these trends to hone your skills even further.
Forex Tool #2: Reliable Charting Software
Other than your broker, this is the most important tool you can have. Good, reliable charting software is more than just candlesticks, it’s a tool to show you the hidden aspects of Forex trading. These hidden aspects are shown through your software’s indicators. Indicators are advanced statistics and overlays which analyze different aspects of trading in order to give you a hint as to the future of the market.
There are hundreds of indicators to choose from, but there are common ones professional traders swear by:
- The Fibonacci sequence is an ancient mathematical formula which could predict market turnarounds.
- The Stochastic RSI is a series of lines that, generally, the market stays between and can determine your ins and outs.
- Bollinger Bands follow the same basic idea as the Stochastic RSI but use a different formula to get there
These indicators are added to your charts and really hone in your trades. You can never have too many streams of information coming in at once!
Forex Tool #3: An Economic Calendar
The Forex is a highly volatile market, which is part of what makes it great. However, there are times when the market is more volatile than others. Most of the reason for this is due to fundamental announcements. Fundamental announcements (or Fundys) are large events which shed light on the economic standing of a country. Some examples are interest rate announcements, job reports, the nonfarm payroll and banking minutes.
The good news about Fundys is it’s practically unheard of for them to come unannounced. The information within these announcements might be a surprise, but their dates aren’t. Always be up-to-date with the latest fundamental announcements by using an economic calendar. You can also download a calendar on your phone.
Forex Tool #4: Time Zone Converter
The Forex is divided into three major markets around the world. When one market closes, another is always open. There are also a few points where two trading sessions will overlap, causing a double-dose of trading. These times are the best for trading because you’re reaping the volatility of two trading sessions at once. By using a time zone converter, you’ll be able to see which markets are open and how long you have to trade them.
The best time to trade is early in the London Session, around 3 or 4 in the morning EST. The London session is traditionally the most traded, and the early hours of trading overlap with the second-busiest trading session in Asia.
Forex Tool #5: Volatility Calculator
It’s often said history repeats itself, and this is just as true in the Forex markets as it is in the history books. Certain currencies are going to be more volatile in different amounts of time. A volatility calculator will show you which currencies are volatile at which points in time. You can use this to change currencies and always make sure you’re getting the most bang for your buck.
Putting it All your Forex Tools together
The tools on this list aren’t here by accident. Each one serves an individual purpose for the Forex trader, but it’s when you use them together that you really see the benefits of forex tools.
For instance: You wake up and immediately check your Economic Calendar to see which fundamental announcements are coming today. You then check the Time Zone Converter to see which markets are currently open. You decide it’s a good time to trade and fire up your Charting Software to see the current state of the market. Once you’ve identified a currency pair to trade you check its movement in the Volatility Calculator. You decide to trade the pair and mark your in, stop-loss and outcome in your Trading Journal. And after all, is said and done you’ve utilized your 5 must-have forex tools together to allow you the best chance to profit from the Forex market.