Selecting the Best Trading Tools

In order to achieve successful and sustainable gains over the long term, you will need to consciously select the trading tools that will become the basis for your trading strategy.  You can do this by talking to other traders, reading internet sites devoted to the subject, or by looking at the various technical analysis books that have been published in recent years.  To get a sense of some of the options, trading tools include indicators like SMAs or EMA (simple moving averages and exponential moving averages), the MACD indicator, the Relative Strength Index, Stochastics, or Parabolic SAR (among others).  All of these trading tools are discussed in greater depth in some of my other articles, so we will not get into the specifics of these trading tools here.   

Deciding on Your Preferred Forex Currency Pairs and Technical Indicators

Essentially, what you are looking for is for these tools to give you clear trading signals that are easy to identify.  All of the major forex brokers offer trading software that will give you free access to each of these tools (and many others), so it is very easy to test a wide variety of these trading tools before settling on your favorite choices.  One example of a trading scenario (using moving averages) can be seen if, hypothetically, a 10-day moving average crosses above a 20-day moving average, as this would signal positive momentum going forward.  Many traders look for situations like this in order to initiate buy positions, and tactics like can be defined for any technical chart indicator you choose..

Once you have tested some of the available charting tools, you will want to use the results to begin selecting the currency pairs that you would like to focus on in your investment practices.  This is another vital aspect in defining your strategy because not all currency pairs trade in the same fashion.  Since some currency pairs are much more common (and commonly traded) than others, price movements in one currency pair will likely see many differences in relation to other currency pairs.  For example, the most common forex pairs like the GBP/USD and the USD/CHF tend to be much less volatile than currency pairs that are less commonly traded, such as the EUR/JPY or the AUD/NZD.

So, ultimately, the currency pair that you choose will depend heavily on the degree to which you are interested in dealing with market volatility.  Of course, market volatility is needed in order to make large gains — volatility simply refers to large price moves.  But it should be understood that some strategies are better tailored for this than others, and this is one of the first factors that should be considered once you begin trading.