There are a variety of tools available to the Forex trader which can be used for both an analysis of the currency markets and also for buying and selling currencies. Indeed software tools are not simply available to the traders but form an absolutely essential part of trading in a market with both high volume and volatility. Software tools not only automate many of today's trading procedures but can also safeguard traders against large losses.
Successful trading relies heavily on information, which needs to be both up-to-date and accurate. Such information will include both historical data (not only of currency movements but also of political and economic events which have impacted the currency markets) and current information about currency prices and trading and political and economic events.
The ability to view this data on screen and in real time, and to access historical data quickly and easily, allows the Forex trader to make accurate assessments of current political and economic conditions and to predict likely rises and falls of currencies against one another.
There are basically two trading methods employed in buying and selling currencies - reactive trading and speculative trading. In reactive trading the Forex trader buys and sells in response to political and economic events. In speculative trading (which forms the bulk of currency trading) the Forex trader makes trading decisions based upon a prediction of how the market is likely to respond to current political and economic events. In both forms of trading accurate and up-to-date information is essential, as is an analysis of both historical and current conditions.
Traders use both fundamental and technical analyses. Fundamental analysis is based upon news about such things as political conditions, economic policies, trade patterns, interest rates and unemployment rates. Technical analysis relies on the charting of historical data to point to patterns and trends which develop over time. In both cases traders rely heavily on information and this means using live news feeds and streaming rates giving minute by minute changes in the market.
In addition to these general tools of the trade a number of other specific tools are also commonly used.
The risk probability calculator (RPC) is a tool that is used to identify those trades which are considered to have a greater potential for gain than for loss. The risk probability calculator can also be useful in identifying the best exit points for a trade.
Pivot points are used to predict movements in currency prices. Pivot points are calculated as an average of the high, low and closing prices of currencies and can tell traders whether or not prices are within the normal trading range.
Pip value calculators are used to tell traders the value of each pip (the smallest currency unit) according to various lot sizes. Pip calculators can be used to indicate the actual profit or loss that will result from movements in the market.
Information is the key to success in Forex trading but this information is of little use without the tools to analyze it quickly and in real time so that trading decisions can be made in a volatile and fast moving market. Mastering the various tools used in trading is essential to any Forex trader's success.
