Top 3 Best Technical Analysis Tools for Forex Trading

So, you’re already done with the basic questions like, “What is Forex Trading?” “Where can I start learning about Forex Trading”, “Who should I follow to learn about Forex trading”, etc.

Now you’re on to the next step, which is finding the technical ones, and that includes finding the best technical analysis tools that work for you.

There are different technical analysis tools that can be used for forex trading. In this article, we will discuss the most popular ones.

Forex Tester 3

I’m sure this is one of the first tools that beginners use to practice their forex strategies before heading over to real money. I also started with this tool, and it’s still my favorite.

Basically, Forex Tester 3 lets you backtest your trading strategy over historical data (yes, you can import data from MT4). It also has a replay mode so you can see how your strategy would have performed in the past.

The only downside of Forex Tester is that it’s not free. However, I believe that the price is worth it because you can save a lot of money and heartache in the long run.

Price Charts

The first tool is price charts. Price charts can help traders identify trends and determine when a currency is over-or undervalued. They can also help traders spot potential support and resistance levels. Here are some chart types that you can use for FX trading:

Line Chart – Used to plot the closing price over a set time period. As seen in the image below, each candle represents one unit of time (days). By default, the Candle has a maximum length of 20 periods. However, there are websites where you can download longer datasets (e.g.eSignal)

Bar Chart – Bar charts are similar to line charts, with the only difference being that they plot price data against volume. With this in mind, if you’re looking for volume-based information then you’ll want to use a bar chart instead of a line chart.

Candlestick (Hi/Lo/Open/Close) – Candlestick trading charts are used to plot the open, high, low, and close prices over a specific period of time. The rectangle-shaped object that encases these is called a “candle”.

The top portion (where the candle opens) is the High price. The bottom part (where it closes) is the Low price. The area between the open and close is called the “body” or “real body”, which indicates if a currency pair closed higher or lower from its opening value.

Hourly Charts – You can use Daily, Weekly, Monthly or Hourly charts depending on your time frame (e.g. Daily, Weekly, Monthly charts give you a bigger picture while Hourly charts give you a more detailed view).

Fractals

Fractals are a technical indicator that was developed by a Japanese trader, Joe Ross. A fractal is basically an image that is self-similar across different scales. In other words, if you zoom in on a fractal, it would look almost the same as it does on its normal scale.

Fractals are used to determine the strength of a trend. Their main objective is to find two similar parts in a currency’s movement and then determine if the second part will retrace or not.

If it does, then the fractal indicator signals that there might be a coming bearish move. On the other hand, if the second part continues the move, then the fractal signals a potential bullish move. Prices can also remain unchanged if there is a third party to the fractal.