Why Forex Analysis Software is Your Most Essential Trading Tool
Forex analysis software is one of the most essential tools that any serious currency trader must have. Also known as charting software, these programs help the trader analyze the markets in order to find winning trades. If you open an account with a forex broker, you have the option of using their charting tool or of using your own program in conjunction with their trading platform. While these programs generally work on the same principles, they may differ greatly in terms of their features.
The basic principle behind forex analysis programs is technical analysis of the markets, or the idea that price movements follow a particular recurring pattern and can thus be used to detect trading signals that tell you when to enter or exit a trade. For example, one of the essential assumptions of technical analysis is that price movements tend to follow trends, meaning that once a trend has been established, future price movements tend to follow it rather than going against it. While not every trader subscribes to technical analysis, it still remains one of the essential techniques that every currency trader needs to at least be familiar with.
What are some of the essential features that forex analysis software must have to make it a valuable tool for traders to effectively analyze the markets?
- Provides access to real time and historical exchange rate data. In order to establish trends, the program must be able to look at the price data of the currency pairs the trader is interested in, both in the past and the present. These data are available in periods ranging from monthly periods that show the highs and lows as well as the opening and closing prices for a particular month, to periodicities as short as one minute.
- Supports different types of charts. While traders usually favor a certain type of chart, the best charting software will allow them to display the data using different chart formats. For example, although the most popular charts are candlestick charts, there are times when a trader may find a simple line graph that charts closing price data more useful for his analysis.
- Supports various kinds of plotting indicators. The best charting software will give you the option to choose which indicators you want to plot on your chart, such as the Relative Strength Index or the Moving Average Convergence Divergence (MACD).
- Line drawing functionality. One of the most useful features of any charting software is the ability to draw lines over the data in order to indicate trends as well as support and resistance levels.
More advanced forex analysis software also provide some features found in trading platforms, such as the ability to trade directly from the charts and to back test trading strategies using historical data to determine their validity. The charting software that you get should be able to accommodate your current level of trading experience as well as having the capacity to upgrade as you become a more seasoned trader, so you won’t have to switch to a new and more advanced program and start the learning curve again.
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