Trading tools are a critical component of forex trading as they act as an aid to decision making. Correct and consistent use of trading tools will lead to better strategies, better decision making and better interpretation of market conditions.
This article focuses on some of the trading tools that have been made available by the Dukascopy website. The main aim is to see how these function and how they can be of use in forex trading.
Getting to the trading tools.
The trading tools are available on the Dukascopy website, www.dukascopy.com under the market info section. Fig 1 shows the steps to the trading tools on the website.
Fig 1: Graphical representation of the steps to trading tools.
Step 1: Go to www.dukascopy.com
Step 2: Click on the market info section
Step 3: Select the required trading tool from the drop down menu of available trading tools.
Now we can discuss how some of the trading tools can be of assistance in the trading journey.
- SWFX Sentiment Index
Fig 2: The Sentiment as at 1100hrs GMT on 16 October 2017
Fig 2 shows the SWFX Sentiment as at 1100hrs GMT on the 16th of October 2017. For the EUR/USD pair 42.77% of the traders were long the currency pair while 57.23% were short. This was a -14.46% change from the last update from the position of the liquidity consumers. The page will also provide the percentage change in the sentiment over periods of 6 hours, 1 day and 5 days.
The Sentiment Index gauges effective speculative interest in currency pairs and currencies. It therefore acts as a contrarian indicator.
- Pivot points
Fig 3: Pivot points as at 16 October 2017
In using the pivot point to generate trading ideas, the three most important pivot points are Resistance 1, Support 1 and the actual pivot point. “If the market opens above the pivot point, then the bias for the day is bullish. If the market opens below the pivot point, then the bias for the day is bearish. By the time the market reaches Resistance 2, Resistance 3 or Support 2, Support 3, the market will already be overbought or oversold and these levels should be used to leave the market rather than enter.”
- Daily Highs / Lows
Fig 4: Daily highs and lows as at 16 October 2017
The daily high and low statistics can be used to formulate a breakout trading strategy. The strategy is based on the simple concept that if the price breaks yesterday’s high or low, it will most likely continue in that direction of breakout. So the trader places two pending stop orders (buy stop or sell stop) to catch whichever direction the breakout happens. The stop loss can be guided by the previous high or low, pivot points or number of pips.
- Technical Indicators
Fig 5: The technical indicator widget
The technical trader can use the results of the indicators shown to come up with his set of trading rules, for example sell/buy the EURUSD if all the indicators at the 15 min level indicate sell/buy.
- Economic Calendar
Fig 6: The economic calendar
The economic calendar is of importance to news traders. The trader will be informed of all the data releases to the market and the likely impact of the announcement on the markets. The market forecast is also available and give an indication of market expectations. If the reading is significantly different from the forecast then high volatility can be expected.
The article only discussed a few of the trading tools that Dukascopy has availed to you all. Using these tools can be a starting point in mastering the forex market and creating and effective trading strategy.