Having discussed at length the position size calculator in a previous article, we thought it might be an opportune time to discuss other forex tools which should prove useful as part of your armoury of weapons to take on the FX market. These tools fall outside the normal scope available from your FX broker and as part of our continual commitment to our clients we intend to (once compiled, tested and our own intellectual property) make these tools permanently and freely available to our client base.
There may be other tools for inclusion in our FX toolbox that you'd like to recommend and as this list is only a starting point please feel free to be pro-active with any additional recommendations in the comments section at the foot of the article. Naturally we've left out the obvious main tools such as charts and the more experienced traders amongst us will already automatically reference many of these tools throughout the appropriate times of the day or week. However, many of us will testify that we've occasionally missed a blindingly obvious move in the markets by forgetting to pay attention to certain freely available tools. Many of us still miss key economic announcements, many position traders or 'currency investors' could operate singularly through the COT report, a sentiment index, the VIX and the Fed's implied volatility rate and there's many a trader who will still ask; "what time does NY open when the UK British summer time ends?"
Some of these tools you'll have to bookmark yourself and be professional and disciplined enough to visit each resource on a daily basis. Some are not free, such as a squawk service and there's often a one off charge to have, for example, a world clock sit inside your browser, nevertheless it's up to you as a professional to examine your needs and requirements.
Position Size Calculator
So let's start with the position size calculator. By putting in your account balance, your risk tolerance in percentage (or money value) and the stop in pips the calculator automatically gives you a lot size. Whether full lots, mini lots, or micro this calculator is invaluable to traders new to FX trading. As we progress we automatically 'do the math' in our head, however, this calculator is one of the most important tools given it is a key money management resource.
Economic Calendar Events List
Currency price reacts to fundamentals. Being aware of which fundamental news releases are scheduled for release on any given day should form part of any trader's pre market preparation. FXCC produce an economic calendar that's as comprehensive as you need.
Real time forex sentiment indicators are based on data of real forex trading positions. They present ratio of open long trades to open short trades, and therefore indicate forex traders' reflection of the market direction. They can be used for assessing trend, or oversold conditions and trend reversal, as well as important price levels the forex market.
VIX refers to the Chicago Board Options Exchange (COBE) Volatility Index. It's calculated from a weighted basket of prices for a range of options on the S&P 500 index. Although originally a measure of the implied volatility of S&P 500 index options, it's now accepted by forex traders as a key indicator of investor sentiment and market volatility. A high reading of VIX means a greater degree of trading volatility or risk over the next 30 day period, while a low value of VIX corresponds to greater market stability.
COT Report (Commitment of Traders)
There is no volume data is available in spot forex trading, as there is no centralized exchange to gather the data. To compensate for this drawback, professional forex traders use the Commitments of Traders Report (COT) as a substitute for estimating forex trade positioning and forecasting currency price trends. COT can be used as a efficient tool for measuring market sentiment as well as for fundamental analysis. The Commitments of Traders Report (COT) is a weekly report published by the Commodity futures Trading Commission (CFTC) of the USA, listing current contract commitments by three groups of futures market participants: Commercial, Non-commercial, and Non-reportable. Issued on Friday, the COT report provides a “breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC” (CFTC).
When using the COT report, pay particular attention to the Non-commercial data, which better reflects forex traders' positions in a currency market. Meanwhile, a shift in market positioning and changes in open interest can be used to gauge trend strength, whereas extreme data in open interest often indicates price reversal.
Fed Implied Volatility Rates
Fed Implied Volatility Rates refers to the implied volatility rates for foreign exchange options provided by the Foreign Exchange Committee and sponsored by the Federal Reserve Bank of New York. These implied volatility rates are the averages of mid-level rates on bid and ask “at-money quotations” on selected currencies including the euro, the Japanese yen, the Swiss franc, the British pound, the Canadian dollar, the Australian dollar, the EUR/GBP and the EUR/JPY cross rates. The Foreign Exchange Committee is comprised of institutions that represent the foreign exchange market in the United States. The data it uses to compile the Fed Implied Volatility Rates are the quotes of 11 a.m. New York time on the last business day of each month, provided voluntarily by about 10 foreign exchange dealers. The results are released on the last business day of each month at approximately 4:30 p.m. New York time.
US Dollar Index for Measuring Sentiment
It is a measure of the value of the U.S. dollar relative to a basket of foreign currencies including euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. The index is a weighted geometric mean of the US dollar's value compared to the currencies in the basket using March 1973 as the base period (100). In forex trading, US Dollar Index is often used by traders to assess the strength of US dollar. As it is listed on ICE futures Exchange US (e.g., New York Board of Trade [NYBOT]), it is often referred to as US Dollar Index (NYBOT) or US Dollar Index (DX, ICE[NYBOT]). It is also called US Dollar Index (USDX).
When trading currency pairs in the Forex market there's no end to the external forces that can govern price movements. News, politics, interest rates, market direction, and economic conditions are all external factors you need to consider. There is, however, an always-present internal force that affects some currency pairs that you need to be aware of. This force is correlation. Correlation is the tendency of certain currency pairs to move in tandem with each other. Positive Correlation means that the pairs move in the same direction, Negative Correlation means that they move in opposite directions.
Correlation exists for a lot of complex reasons and some currency pairs contain the same currency in their base pair as others contain in their cross pair, for example the EUR/USD and the USD/CHF. Because the Swiss economy tends to mirror Europe in general and because the US Dollar is on the opposite side of each of these pairs, their movements will often mirror each other.
Correlation is actually the statistical term for the measurement for the tandem movement between any 2 currency pairs. A correlation coefficient of 1.0 means the pairs move exactly in tandem with each other; a correlation of -1.0 means the pairs move in exactly the opposite direction. Numbers between these extremes show the relative amount of correlation between a set of pairs. A coefficient of 0.25 would mean that the pairs have a slight positive correlation; a coefficient of 0 would mean that the pairs were perfectly independent of each other.
Meta Trader Expert Advisors
Downloading MT4 and MT5 expert advisors (or EAs) can be used with the MetaTrader Forex trading platform to enhance your currency trading results. You can generally test them freely before using them on your real Forex account. You'll need an account with any of the MetaTrader Forex brokers to use any MT4 EA.
Squawks can bring you closer to the markets you trade. Squawk use in Forex is geared toward both novice and experienced traders who want to add the tools and add a trading edge to their arsenal of trade techniques. Squawks can offer you comprehensive education, by listening to the live audio broadcast you will hear real-time market calls as they happen, not on a delayed basis.
World Clocks allow you to easily tell the time in London, Tokyo, New York and other popular cities and countries. With a quick glance you have the times for all markets at one time. Better clocks can show market hours and information about market activities beyond simply showing the opening and closing times of each market. Such activities include; upcoming holidays and early closings, and events outside the core trading hours. The information can often be displayed as a strip at the left edge of a screen with the ability to switch to a full screen of additional information.
To end here's another 'micro list' which can also be useful. Pivot, support and resistance drawing tools should be available on most charting packages as should Fibonacci, however, how many of us browse You Tube for interesting trading videos whilst waiting for our set up? There are literary thousands of superb trading videos on many channels. Similarly news feeds should form part of your regular browsing. Keep searching, keep moving keep developing.
- Pip Calculator
- Pivot Price Calculator
- Fibonacci Calculator