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Date of Entry : 2016-03-21
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Three of the Best Analytical Tools in Forex Trading

on Mon Nov 07, 2016 12:20 pm
Trading securities is something which is viewed by most people as a quick, low-risk, and somewhat easy way to make some quick money. People normally trade in stocks, commodities such as metals and grains and foreign currencies. There’s a thing that needs to be made clear here: the term ‘trading’ here does not imply that the people are actually purchasing any of the currencies or commodities being dealt in.  

It’s rather the difference in pips and spreads of the opening and closing prices of any commodity or currency pair, which enables the trader or speculator to make a profit by placing a position with regards to the possible or probable movements of the currency. All in all, there are various processes and ways in which the trade could be carried out, by using a host of tools which are commonly known as indicators, charts, robots and others. This article is going to discuss a few technical analysis tools that are instrumental in analysing probable trading positions and appropriate timings for undertaking risks in the market.

·         On-Balance Volume: 

The on-balance volume indicator (also known as OBV) is mostly used to gauge the positive and negative volume flow in a security. This is, of course, completely relative to its price over time. It is a hassle-free measure which maintains and calculates the volume by adding or subtracting the volume of each period, depending on the movement of prices. 

This measure improves upon the basic volume measure by combining price movements with the volume. The basic concept behind this indicator is that price movement is preceded by volume. Therefore, if a security is witnessing an on-balance volume indicator, then it is a sign that volume is enhancing based on upward price moves. A decrease would mean that the security is seeing increasing volume on down days.


·         Accumulation/Distribution Line: 

One of the most commonly used indicators to determine the rate of money flow of a security, is the A/D line or the accumulation/distribution line. It is roughly the same as the on-balance volume indicator. But this indicator does not only consider the closing price of the security or commodity; it also takes into account the range of trade executed within a particular period. This is popularly thought to provide a more factually correct picture of currency flow than of the volume of balance. The upwards-trending line is considered to be a signal of enhanced buying pressure, as the stock normally closes above the point just halfway above the range. If the line is trending downward, it is a signal of increasing selling pressure in the security.


·         Average Directional Index: 

The ADX is a trend-based indicator which is used to measure the momentum and reliability of an existing trend. This indicator's central focus is not on the trend’s direction, but rather on the momentum. When the ADX is above 40, the trend is considered to have a lot of directional strength - either up or down, with regard to the direction of the trend. Extreme readings to the upside are quite rare compared to low readings.

It is good to have an idea about the analytical tools before stepping into the CFD's market. 
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