Just like the internet has made online investing possible for people all around the world, the rise of a hyper-connected global community means that there are more tools for Forex traders to use. If you have taken the time to research, you are probably familiar with some of the main analysis tools for Forex: fundamental analysis and technical analysis.
Many traders prefer to make decisions based on pure fundamental analysis, which relies on staying up-to-date with the major news. Government activity, business news, and changes caused by environmental catastrophes all fall under the areas that a fundamental analyst would keep an eye on. News stories often have far-reaching implications beyond just the local area: as we become more reliant on international trade, our extremely connected world means that such events will often ripple out into unexpected changes elsewhere.
For some people, keeping track of so many metrics can be overwhelming. If you are struggling with fundamental analysis, technical analysis may help you by simplifying trends into indicators that can be automatically tracked. Even those who prefer fundamental analysis will quickly find that technical analysis gives them the edge they need for bigger returns. Technical analysis relies on the concept that the activity of the market fluctuates in a somewhat predictable pattern, and analysis of past events can give insight into future behaviour.
This Forex article will summarise some of the myths of technical analysis and provide quick overviews of the best tools around for technical indicators and charting.
Myths Of Technical Analysis
- Technical analysis is a plug-and-play solution
Many beginners think that technical analysis software will tell them when to buy and sell. While it is important to get the right technology to assist you in your analysis, successful traders know that picking the most effective indicators is the difference between success and failure. Smart traders take the time to educate themselves on what their analysis actually means. Choose the top indicators by researching them, and stay consistent! Once you choose your charting tools, track daily, weekly, monthly, yearly, and seasonal patterns to get a precise picture of market fluctuations.
- Technical analysis gives you exact predictions
It is often easy to fall into the trap of thinking that predictive trends will give you exact economic forecasts. This can give traders a false sense of security since numbers give the illusion of certainty. Remember that any good interpretation of the market is a probability, not a guarantee, and the results of any good analysis will often give you predictive ranges. Make sure to have good risk controls in place and not to be over-confidant just because you have some amazing tools to help you.
- Any market analysis software can be used for Forex
Unfortunately, some beginners make the mistake of just using any trend analysis tool to learn fundamental analysis. It is best to use technical indicators specific to Forex since different assets have different patterns in variability and timing. You can review the popular tools below to find a suitable Forex-specific resource for your fundamental analysis career.
Technical Analysis Tools
Fortunately, now that you are familiar with these myths, you will be aware of what not to do when you search for the latest technical analysis tools. Since many tools are offered by brokers and trading platforms, it can be challenging to find the right fit for your needs. Be sure to learn about these tools:
- Access to economic news calendars
It is important to supplement technical analysis with knowledge of world events, such as economic news that might affect the value of a country’s currency. Past and future market consensus data will give you ideas for what to look for in your technical analysis.
- Pip calculator
Pip calculators will give traders insight into how much their trading units are worth, based on the trader’s position at the time, the amount available in their account, and their leverage and position size.
- Forex volatility calculator
Not all Forex volatility calculators are created equally. Good traders will make sure their calculator can show historical volatility in a range of time frames, such as weekly and yearly. This gives them an idea of how much a currency pair fluctuates within any given amount of time.
- Currency correlation tool
A currency correlation tool shows traders whether currencies are moving in the same direction (positive correlation) or opposite directions (negative correlation) relative to each other. A weaker correlation is represented by a smaller absolute value (ex. 0.1) while a strong correlation has an absolute value closer to 1.0 (ex. 0.8).
Technical Analysis Platforms And Apps
You can find some of the best technical analysis tools on various apps and platforms. Brokers will often offer other analysis options for free or through paid subscriptions. As you try out these tools, many of which are available for free with trial accounts, you will become more familiar with what you personally prefer. The following list of software and trading platforms with easy-to-use tools for beginners will get you started with learning technical analysis in no time at all!
Example chart from Tradingview.com
TradingView has a 30-day trial available and some brokers offer a free year of TradingView when you sign up for an account. The main advantage of TradingView is the smooth functionality of the charts. Traders can easily see different timeframes for the same currency by using a multiple-window view, allowing for easier comparisons. They can also compare different currencies by linking the time interval to all viewed charts and use correlations between currencies and other commodities like gold, which can influence currency charts.
The charting tools are easy to use, making it a great choice for a beginner trader. TradingView also has a drop-down list of popular indicators, as well as a library of other indicators that users have developed. Advanced traders will be happy to see that TradingView allows for the creation of custom indicators using their own “Pine Script” language. It also has a built-in economic calendar that keeps track of major news items, giving users the best of both technical and fundamental analysis worlds.
For those traders who prefer a mobile app for on-the-go updates or quick testing of Forex analysis ideas, keep an eye out for Technician. A mobile platform focused on charting options, it offers over a dozen chart types and many more indicators, so it’s easy to expand your knowledge with this platform. Linking brokers directly to the app is possible, so make sure your broker is compatible. The free option is not as customisable as the other tools mentioned above, but it is a good first step for beginners who want to explore a variety of Forex indicators.
NetDania has a more complex chart layout than the sleek layout of TradingView. However, it is customisable with the option of an economic calendar to supplement the technical analysis tools on offer. NetDania NetStation even allows users to change time zone options while viewing charts. There is a free version with ads, and the ad-free subscription option comes with a mobile version as well. This makes it another good alternative for beginner traders, especially since it allows for the creation of watch lists and experimentation with a target, limit and stop with various trading strategies.
One good option for mobile traders is Trade Interceptor, which won the “Best Mobile Platform” award in 2012. Most significantly, it allows for touch-chart trading, letting users make trades as they are viewing the data.
With over 100 technical indicators and 14 advanced chart types, Trade Interceptor also offers quad-screen viewing capabilities for more robust analyses. It is often the preferred app for trade simulators, who use historical data to test trading strategies. Demo trading became available through ThinkMarkets in 2017. Traders find it somewhat similar to TradingView, however, since broker options are limited, make sure you use a trading tool that is compatible with whichever ASIC-approved broker you decide on!
Thinkorswim is an all-time favourite, available in multiple languages for traders around the world. Because TD Ameritrade does not offer trading options in Australia, this choice is only recommended as a learning platform. For those interested in learning, thinkorswim is a good choice to try out your strategies with a world-class set of tools. Users can sign up for a 60-day paper trading trial and experiment with traditional technical analysis strategies using this free practice account.
Some traders may be able to take advantage of thinkorswim through a corporate TD Ameritrade account. For the many Australian traders who enjoyed the advantages of thinkorswim before it closed Australian accounts in 2012, Interactive Brokers was the obvious tool to transition to. Interactive Brokers offers technical analysis features at the basic level with mobile-friendly options, so it is a great alternative for thinkorswim enthusiasts.
Learning Tools For New Traders
Now that you have learned about the most popular tools for technical analysis in Forex, make sure to understand what the charting options and technical indicators mean. Knowing the software is not enough! If you are unfamiliar with terms like oscillators, moving averages, consolidation patterns or the Relative Strength Index (RSI), you will need to spend some time educating yourself to get the most out of these programmes. Check out our tutorial on technical analysis to increase your profit and build a strong base for your career in Forex.