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There are many forex trading tools available for the modern forex traders that can really improve their profitability and make their life easier as they can analyze the forex market in a more professional way and gain more confidence in their trading.

In order to make successful trades, Forex traders need lots of information, for example the current exchange rates, which are the most evident information you can find but which is just the tip of the iceberg. A professional forex trader needs historical data as well as fresh information about political and economic conditions that could affect the behavior of currency pairs he may be trading at the moment.

Successful Forex trading is all about being able to make a good decision about whether a currency will fall or rise against another currency allowing the Forex trader to profit from those currency movements.
Most Forex trading can be characterized as speculative, this means the trader makes buying decisions based on analysis and predictions on how the market will respond to current political or economic events, and in order to be profitable with speculation the trader requires up-to-the-minute information and an analysis of current and historical conditions.

A number of forex trading tools are available to help you as a Forex trader, so you can minimize your risk and maximize your profits. For example:

Bid and Ask Price: Like the stock market, the Forex market has a bid and ask price. The bid is the price you can sell at. The ask is the price you can buy at.

Bid/Ask Spread: The bid/ask spread or simply spread is the distance between the bid and ask prices. This spread is usually expressed in pips. For example, if the the bid price is 1.2362 and the ask price is 1.2365, the spread between the bid and ask prices is 3 pips wide (1.2365 - 1.2362 = 3 pips).

Lots: 1 Lot is equal to 100,000 units of the base. Likewise, 2 Lots are equal to 200,000 units of the base, 3 Lots are equal to 300,000 units of the base, and so on.

Margin: Margin is referred to as the collateral needed to facilitate a Forex deal. Usually, this is a very small portion of the entire deal, say 1% or 1:100. Please note that margin is a double-edged sword. Without the proper use of risk management tools (for example, the stop-loss option), you can experience substantial losses as well as gains.

Long Position/Short Position: A long position is a market position that appreciates in value if the market price increases. Conversely, a short position is a market position that appreciates in value if the market price decreases. (In every open Forex position, you are long in one currency and short in the other.)

Stop-Loss Order: A stop-loss order is a market order to close a Forex position if or when losses reach a pre-set threshold. According to Bruce Kovner: Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I am getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. Ed Seykota adds: The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.

Take-Profit Order: A take-profit order is a market order to close a Forex position if or when profits reach a pre-set threshold.

Fundamental Analysis: A fundamental analysis uses economic and political factors, such as unemployment rates, interest rates, or inflation, as a means of predicting currency movements. Fundamental analysis is concerned with the reasons or causes for currency movements. Many Forex traders who rely on fundamental analysis plan their trading strategies around a number of key U.S. Government economic indicators. Some of these indicators are the Gross Domestic Product (GDP), Foreign Exchange Rates, the Composite Index of Leading Indicators, the Consumer Price Index (CPI), Retail Sales, Housing Starts, the Employment Cost Index, and Consumer Confidence.

Technical Analysis: A technical analysis uses historical data as a means of predicting currency movements. The technical analyst believes that history repeats itself over and over again. Technical analysis is not concerned with the reasons for currency movements (for example, interest rates or inflation). Instead, it believes that historical currency movements are a clear indication of future ones.

Trading System: According to Howard Abell, The trading system gives the trader the ability to control his or her emotional states rather than allowing them to control him. A system is a disciplined method for organizing dynamic, ever-changing market phenomena.

Trading Forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
Provided you have downloaded your broker’s trading station software, and once you have decided which currency pair to trade, you can log in to the trading station and then enter the desired currency pair as the current exchange rate appears on the screen. The amount of the trade is entered, this means, how much currency you are willing to buy. Some brokers may even give you the option of specifying the amount you wish to risk, automatically setting a 'stop loss rate' into your order.
After the details of the trade are entered, you will be taken to a confirmation screen where you can accept the current price on screen. You may be given the option of 'freezing' the quoted price, meaning the price of your transaction is exactly what you see on screen without any slippage. Accept the rate and you have placed your trade.
With the use of software tools you can enter a 'stop loss rate' to automatically sell the currency if it falls below a certain rate, avoiding possible losses and giving you peace of mind. But this is not all the automation you can get, you can also enter a 'take profit rate' to automatically sell the currency when it reaches a certain level. This way you won’t need to monitor your account all day in order to take profits once an acceptable number of pips have been earned.

Whether you are trading at a community market in Africa, Wallstreet, or the worldwide foreign exchange market, investors want to acquire valuable assets for a good price so that they can save or make money in the future. Sometimes, trades are made because an investor actually needs to use the commodity that they buy, but many times trades take place because the investor plans to hold the asset until its value increases so that they can sell it at a higher price and make a profit.

Generally, the bigger the investment and the bigger the market, the higher the risks involved with trade. This is one of the reasons that Forex is considered one of the riskiest places to invest your money. After all, forex hosts more dealers and handles more volume than any other market on the earth. And, except for weekends, it is open twenty-four hours a day.

Naturally, these long hours of operation and large numbers of participants give rise to several different risks. For example, if you are a normal human being who needs food, sleep and social activities to lead a normal and healthy life, you aren't going to be able to monitor your status on Forex around the clock. And, since there are so many factors that can affect market conditions on Forex, the value of the currency that you hold could change at any moment. And second, when there are so many banks, governments, firms and individuals trading on Forex, investors also have to be wary of dealing with fraudulent or irresponsible parties.

Fortunately, there are two simple and effective forex trading tools that can help investors cope with these risks though. The first is called a stop order or automated trading systems. These automated market regulators help protect your assets by closing your account to trade whenever market trends fall below a predetermined level. And, since you don't want to miss out on profitable opportunities either, they can also open your account for trade if the market rises to or above a predetermined level. Since computers and other electronic systems can guard your money twenty-four hours a day, this is an effective way to prevent damaging losses when you are not monitoring the market.

Being an awakened trader of forex market, you should remain aware about every latest happening of currency trading. Therefore, it's important for you to have access to daily forex trading summary for important currencies and currency pairs. Add to this, a weekly forex trading summary is also beneficial as it will encompass detailed analysis of your sought subject. Tools that help you to access and monitor the interest rates, financial calendar, glossary database are also worthwhile.

Newcomers to trading the foreign exchange currency markets do well to accept the observation of experienced seasoned traders that the idea of a perfect Forex trading tool is an illusion.

While no perfect Forex trading tool exists, using a combination of tools to identify a converging of favorable market factors can yield a majority of high probability trades over a period of time. Trendlines certainly deserve close consideration and many successful traders add them to their collection of Forex trading tools. It should be stated at the outset that trendlines by themselves do not provide a strong enough signal to warrant making a trade. They are a useful addition and provide confirmation of signals from other tools.

Fibonacci jumped into the technical mainstream late in the bull market. Futures traders had it all to themselves until real-time software ported it over to the equity markets. Its popularity exploded as retail traders experimented with its arcane math and discovered its many virtues.

Fibonacci ratios describe the interaction between trend and countertrend markets -- 38%, 50% and 62% retracements form the primary pullback levels. Apply these percentages after a trend in either direction to predict the extent of the countertrend swing. Stretch a grid over the most obvious up or down wave, and see how percentages cross key price levels.

Convergence between pattern and retracement can point to excellent trading opportunities. Keep in mind that retracements work poorly in a vacuum. Always examine highs, lows and moving averages to confirm the importance of a specific level.

Discord between retracement and the underlying pattern generates noise instead of profit. Move on to a new chart when nothing lines up correctly. This divergence generates most of the whipsaw in a price chart. Alternatively, strong phasing between Fibonacci and pattern exposes highly predictive reversals at narrow price levels.

First Rise/First Failure

First Rise/First Failure marks the first 100% retracement of a trend within your time frame of interest. It provides an early reversal warning after a new high or low. The 100% retracement violates the major price direction and terminates the trend it corrects. From this level, the old trend can reestablish itself if it breaks through the old 38% level. More often, traders will use that level to enter low-risk positions against the old trend.

Parabola Hunt

Parabolic movement tends to occur between the 0%-to-38% and 62%-to-100% Fibonacci levels in all trends. This tendency offers a great tool for finding the big moves when looking for trades. Watch for congestion to form at the 38% or 62% level. Then use a simple breakout or breakdown strategy when price moves past it. The next thrust can be dramatic, with price moving like a magnet back to an old high or low. Of course, the strategy only works when you can find these levels in advance.

Continuation Gap Extensions

You can often target the exact price a rally or selloff will end at by using the continuation gap as a Fibonacci extension tool. Identify the gap by its location at the dead center of a vertical price wave. Then start a Fib grid at the beginning of the trend and extend it so the gap sits under the 50% retracement level. The grid extension points to the terminating price for the rally or sell off.

Overnight Grids

Find an active stock and start a grid from the high (or low) of a session's last hour. Stretch the grid to the opposite end of the next morning's first hour low (or high). This defines a specific price wave traders can use to uncover intraday reversals, breakouts and breakdowns. The overnight grid also offers a way to trade morning gaps. The gap will often stretch across a key retracement level and target low-risk entry on a pullback.

What Does Fibonacci Retracement Mean?

A term used in technical analysis that refers to the likelihood that a financial asset's price will retrace a large portion of an original move and find support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

We will be using Fibonacci ratios a lot in our trading so you better learn it and love it like your mother. Fibonacci is a huge subject and there are many different studies of Fibonacci with weird names but we’re going to stick to two: retracement and extension.

Let me first start by introducing you to the Fib man himself…Leonard Fibonacci.
Leonard Fibonacci was a famous Italian mathematician, also called a super duper uber geek, who had an “aha!” moment and discovered a simple series of numbers that created ratios describing the natural proportions of things in the universe.

The ratios arise from the following number series: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 ……
This series of numbers is derived by starting with 1 followed by 2 and then adding 1 + 2 to get 3, the third number. Then, adding 2 + 3 to get 5, the fourth number, and so on.

After the first few numbers in the sequence, if you measure the ratio of any number to that of the next higher number you get .618. For example, 34 divided by 55 equals 0.618.

If you measure the ratio between alternate numbers you get .382. For example, 34 divided by 89 = 0.382 and that’s as far as into the explanation as we’ll go.

These ratios are called the “golden mean.” Okay that’s enough mumbo jumbo. Even I’m about to fall asleep with all these numbers. I'll just cut to the chase; these are the ratios you have to know:

• Fibonacci Retracement Levels

0.236, 0.382, 0.500, 0.618, 0.764

• Fibonacci Extension Levels

0, 0.382, 0.618, 1.000, 1.382, 1.618
You won’t really need to know how to calculate all of this. Your charting software will do all the work for you. But it’s always good to be familiar with the basic theory behind the indicator so you’ll have knowledge to impress your date.

We were speaking with a successful broker and he revealed that one of his strategies was to ride a stock up for 30% gains and then exit. That was his strategy. Let it go up 30% and get out. Sounds reasonable. But as Trend Followers know, this type of strategy is prone to problems. The biggest problem is that it goes against the math of getting rich. He is not letting his profits run!

About the story of the new trader who approaches an old Trend Follower and asks, where's your objective on this trade? The old Trend Follower replies that his objective is for the position to go to the moon.
When you trade as a Trend Follower, your objective is to stay in a position forever. You don't want to think about exiting. Of course, you have a plan for exiting long before you enter the trade, but the idea is to follow the trend as far as it will go up.

A technical indicator is a series of data points that are derived by applying a formula to the price data of a security. Price data includes any combination of the open, high, low or close over a period of time. Some indicators may use only the closing prices, while others incorporate volume and open interest into their formulas. The price data is entered into the formula and a data point is produced.

What Does a Technical Indicator Offer?

A technical indicator offers a different perspective from which to analyze the price action. Some, such as moving averages, are derived from simple formulas and the mechanics are relatively easy to understand. Others, such as Stochastics, have complex formulas and require more study to fully understand and appreciate. Regardless of the complexity of the formula, technical indicators can provide unique perspective on the strength and direction of the underlying price action.

A simple moving average is an indicator that calculates the average price of a security over a specified number of periods. If a security is exceptionally volatile, then a moving average will help to smooth the data. A moving average filters out random noise and offers a smoother perspective of the price action. Veritas (VRTS) displays a lot of volatility and an analyst may have difficulty discerning a trend. By applying a 10-day simple moving average to the price action, random fluctuations are smoothed to make it easier to identify a trend.

Support, Resistance and Entry

Many people use the jargon terms support and resistance. You have probably heard brokers talk of their importance or TV's continuous babble of predictions, meaningless advice and analysis. The words are used to describe perceived tops and bottoms in a market.
Unfortunately, support and resistance is a waste of time. Whether the market is going to penetrate support or resistance has nothing to do with your entry price. Your entry price has only personal significance. It has no objective significance in the market. The market is not going to go through a support point or go through a resistance point just because of what your entry price is. The concept is not a relevant factor.

A Practical Guide to Technical Indicators

Over the past decades, attempts have been made by traders and researchers aiming to find a reliable method to predict next action of the securities. As a result we have a variety of different fundamental and technical analysis methods and many theories today that really work. For the first pace I want to discuss technical analysis which is very popular these days.

Technical analysis is a common method to evaluating securities and determining the next direction of the price through using chart patterns and mathematical indicators or a combination of both. Many believe that it is the most reliable way to find out how supply and demand is going to be changed and what is the latest decision made by market participants. As a matter of fact a large portion of market traders prefer to use technical indicators to confirm suggested chart patterns or trading opportunities.

Sometimes indicators act like they are completely wrong in predicting or confirming the direction of the market. Is it because they are absolutely useless or maybe you read them in a wrong way? The answer is, sometimes the market environment is not suitable for a particular indicator. That means you can't use a trending indicator in a range market and vice versa.

Also sometimes different technical indicators signals conflict and it is not easy to pick the right interpretation between the possibilities that came out of each indicator. This is because of the nature of each indicator and this kind of outcome often means "a wrong setup". You must make sure that no indicator can always show you the right trading signal. So I think it is a must, for traders to understand the nature of the indicators and effectively avoid their noises.

Day trading technical indicators are the representation of mathematical formulae a day trader can use to decide when to do the trading. Forex day trading involves buying and selling of various currencies with the goal of making a profit from the difference between the buying price and the selling price within a day.

The day traders employ different strategies like short term scalping where positions are only held for a few seconds or minutes or longer term swing and position trading, when they hold the position for the whole trading day. For their trades they follow one or more day trading technical indicators or develop a strategy based on a combination of many such indicators.

A day trading technical indicator is a series of data points that can be derived by applying a formula to the price data. Price data includes any combination of the open, high, low, or close over a period of time.

Some technical indicators may use only the closing prices while others incorporate volume and open interest into their formulas. The price data is entered into the formula and a data point is produced, which in turn creates the indicator.

The list of day trading technical indicators is practically endless. There are Absolute Breadth Index, Bollinger Bands, Bull/Bear Ratio, Candlestick Charts, indicators based on Dow Theory or Elliot Wave Theory, Envelopes, Fibonacci Levels, MACD, Moving Averages, TRIX, Weighted Close, and many more. All these can be used as a day trading technical indicators with slight or no modifications.