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5 Most Effective Analytical Tools for Forex Beginners

5 Most Effective Analytical Tools for Forex Beginners

Forex traders of all levels need tools to enhance their decision making. These tools which on MT4 can help spot market trends, find trading opportunities and improve your risk management skills so you can limit your losses during market downtrends.

The best brokers will offer tools most suited to their clients’ needs. This is important as they will help enhance your trading strategy and lower your risk taken.

Here are some tools that beginners can use to boost their trading performance.

1. Economic Calendar

Forex traders need to stay tuned to geo-political events and breaking news as these events can impact the market and lead to price fluctuations. Traders can utilise the economic data of a country to estimate the viability of its currency for future investments. Therefore the days leading up to the release of key economic data tend to have increased market volatility. Before a big event, many traders will close their pending orders leading to a drop in market liquidity. Important dates are available on the economic calendar around one – two weeks in advance.

Economic calendars provide the consensus expectations, past figures and actual data in real time. When the actual data released is higher or lower than expected, traders can plan their positions accordingly. This can be very helpful in avoiding sudden losses.

Important data releases to track include:

  • GDP data
  • Interest rate announcements by Central Banks
  • Inflation rate
  • Retail sales data
  • Unemployment data
  • Manufacturing indices
  • Balance of trade

2. Forex Pip Calculator

New forex traders may not know how much capital to risk per trade, which could impact their decisions. For example, they may close their positions too quickly and not profit as much. A forex pip calculator can be a good tool to estimate the risk per trade. Pip or point-in-percentage, represents the lowest degree of change by which currency prices fluctuate. This is standard across the board to help traders make more informed decisions. For US Dollar-based currency pairs, the pip is $0.0001.

By entering position details like lot size, currency pair, account currency and leverage ratio; traders can determine the value per pip in their base currency. This makes it easier to evaluate whether a trade is worth the risk.

Pip value is calculated as: (One Pip/Exchange Rate) x Lot Size. Most pip calculators provide live exchange rates.

3. Technical Indicators on MT4

One of the most popular forex trading platforms is the MetaTrader 4 platform as it offers a range of highly useful tools for technical analyses. The technical indicators are based on calculations using past and present price movements. Utilising such tools can help traders find trading opportunities, as well as points at which stop-loss orders can be placed.

On MT4 there are more than 50 technical analyses tools however some may be too complex for beginners. Tools such as Moving Averages (MA), Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI) are the most popular ones used by beginners. MT4 also has strong charting capabilities; these can be used with technical indicators to back test strategies and understand how they will perform in a live market. For beginners, an MT4 demo account is a great way to test strategies.

4. The MT4 Accelerator Tool

Blackwell Global has introduced a range of tools into the standard MT4 platform; a sentiment monitor, alarm manager, correlation matrix and market manager. These tools are of institutional quality and come as an added bonus to the existing system features.

The Sentiment Monitor shows the market sentiment by looking at the number of long or short positions held for a pair. Traders can use this to see a graphical representation of the historical sentiment against price movements.

The Accelerator tool has a Session Map which helps beginners understand the forex trading markets in session. In addition, future news events and an overview of currency pair performance are also embedded.

The Correlation Matrix shows currency pair correlations; this is the degree at which the price movements between two currencies move in the same, opposite or completely random directions in a certain timeframe. By knowing these values, traders can see how much risk they are exposing their trading accounts to with each trade.

5. The Trading Diary

Disciplined traders have a habit of recording their trade decisions, so that they can improve on their strategies and learn from their mistakes. The Blackwell trading diary is a tool that can provide traders information on their most successful strategies. For example, traders can see what time of day led to their best or worst trades in the past; this can help with future decision making.

Seeing how the P/L is impacted by certain habits or decisions can also help traders fine tune their strategies. The tool can be used to segregate trading activities based on multiple parameters such as P/L impact, dates, position sizes and price executions.

Forex trading has greatly evolved in the past decade or so and along with it the number of available trading tools. If you choose to trade with a regulated broker, you can be assured of the safety and security of your funds so you can confidently develop you trading strategy with them and the help of their trading tools. Before using them live, consider testing them on a demo account, to stay assured of their robustness.

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