Top 4 tools every forex trader must have
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Despite 2020’s challenges, the Forex trading industry continues to thrive. A report on London Loves Business cites a couple of instances that prove this. For example, the GBP/USD had a high of 1.2973 and a ‘low’ of 1.2173 as of September 2020. The same report also emphasises how the UK continues to be the top foreign exchange hub in the world, despite the GBP volatility caused by the Brexit transition. Of course, traders are hopeful that the market will begin to stabilise once things calm down.
In short, 2021 remains to be a good year for Forex trading. And if you want to take advantage of this opportunity, you need the right tools. Here are some of the best ones every Forex trader must use:
Economic calendars
Economic calendars are platforms that display pertinent economic news such as GDP, central bank rate decisions, and Nonfarm Payroll reports that may impact the trading market. An article from Small Biz Daily advises that traders should access economic calendars once a week to determine affected currencies and expected outcomes. Some economic calendars like BabyPips.com and Forex Factory will even offer forecasts. Always refer to at least two economic calendars, so you can compare numbers.
Heat maps
Heat maps are real-time updating charts that display trends between currency pairs, indicating which trades might be more or less profitable. The FXCM trading heat map even allows you to toggle the timeframe of this analysis, from ‘yesterday’ to the ‘last 30 days’. This helps you pinpoint which currencies have become stronger (or weaker) compared to others over a certain period. For example, if one of the bars says that AUD/USD is at 1.55%, it indicates that AUD has appreciated that amount against the USD. It could be a sign to buy AUD, as it may strengthen more against the USD.
The opposite is also true. If the bar says USD/ZAR at -2.64%, it means that USD is dropping in value against the ZAR.
Currency correlation tools
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If heat maps give you insight into the movement of one currency against another, currency correlation tools let you know the trends between two pairs. In FXStreet’s chart above, you can see how the coefficient ranges from 1 to -1 — with 1 being a perfect positive correlation and a -1 for the opposite. The closer the coefficient is to both ends of the spectrum, the more closely affected one pair is because of the other’s movement. For example, if the correlation between EUR/USD and GBP/USD is at 0.8 when the demand for USD falls, the level of both pairs will increase.
Meanwhile, if the correlation between EUR/USD and JPY/USD is at -0.6, if the USD falls, the JPY/USD level could increase while EUR/USD decreases.
Copy trading platforms
Copy trading is the act of linking your portfolio to another trader. So, if they make a new trade, you automatically trade as well. It also means that you share both their losses and gains, so it’s important to get a trader who knows what they’re doing. Then again, one great thing about copy trading platforms is how copies are percentage-based. For example, you can choose to only put 5% of your portfolio in a single trader. Many copy trading platforms like ZuluTrade and eToro won’t even allow you to invest more than a certain percentage in a single trader. This diversifies your risks.
There are a lot of factors that you need to keep track of if you want to be a successful trader. Fortunately, this becomes easier with the right tools.
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