Forex Traders Leverage Technology to Increase Earnings

Long gone are the days when traders in stocks and futures and currency hunched over paper ledgers and foursquare paper to record trades, enter data, make calculations and forecast trends. Today’s Forex trader has a wealth of technology tools to help plot positions, track trends and receive and record data. From data feeds to spreadsheets to specialty charting software, the computer and internet revolution has opened the trading floors to anyone with the right tools. Data feeds, spreadsheets, data analyzers and charting software have changed the way that most forex traders do business in a big way.

Most online Forex brokers have a suite of software tools that they provide or recommend to their clients. These software suites will include everything a trader needs to trade on their own system. There are also independent third-party software forex trading suites that are designed to integrate all of your trading accounts and manage your entire portfolio. They all have several common components.

Data Feed – Getting the Information

Forex traders rely on information to help them make decisions about buying, selling and trading – both up to the minute information about the current market standings and historical data that can extend back a day or a decade. In order to set up the charts and analyses required to make effective, profitable decisions, you need a reliable, fast data feed that pipes all the latest figures directly into your spreadsheets, charts and automated trading software. Some services maintain their own data feeds that are made up of multiple data feeds from several sources.

Spreadsheets for Tracking and Analysis

Forex spreadsheets are far more than record keepers. Most are designed to integrate with Microsoft’s Excel, though there are some that work with Lotus and other spreadsheet and financial tracking software. The spreadsheets use formulas that can pinpoint market moves and generate signals to enter or leave a trade. Spreadsheets can also be used to record and analyze historical data for back testing your trading system, or forecasting future movement of the currencies in which you have an interest.

Charting Software Gives You the Big Picture

While you can design your own charts from your spreadsheets, charting software makes the process far easier by setting up all the parameters for you. You can find charting software that offers multiple chart types and parameters so that you can see precisely the data you’re looking for in graphical form. You can choose bar charts, pivot charts or candlestick charts, each of which tracks the currency exchange rates of the currency pairs that you’re following.

Charts are the visual representation of the market performance of the currency pairs over a period of time. While there’s always some unpredictability in the Forex market, history has shown that the market follows very specific patterns of rising and falling prices. Charts make it easy to see those patterns both in retrospect and as they unfold. When you add in data from a real-time data feed to build those charts, you have one of the most powerful tools on which to base your trading decisions.

Neural Networks

The newest wave of trading tools focuses on a concept of artificial intelligence and learning called artificial neural networks. Because trading decisions are so heavily based on historical data and identifying patterns, most trading analysis software is based on technical analysis, a theory that states that all that matters is performance. This is in direct contrast to those that favor fundamental analysis, which takes into account real world happenings that influence the rise and fall in the value of a country’s currency. Most experts agree that a combination of the two is what works best – and that’s what neural networks provide.

Artificial neural networks are modeled on the human brain and meant to simulate the way that the human brain learns. A neural network ‘learns’ by studying historical data, then making predictions based on what it already knows. When those predictions are proved right or wrong, the network learns something new – and goes back and adjusts all that it already ‘knows’ in light of that new information.

Neural network trading software has been hailed as a Holy Grail for Forex traders. Because neural networks can assimilate multiple types of data and ‘learn’ from them, neural network software is capable of incorporating fundamental indicators into the technical analyses.

Automated Trading

In a market that can move up and down with the irregularity of a see-saw manned by a pair of three year olds, timing is everything. The currency market is one of the most volatile markets in the world, with prices moving by the second. The time that it takes to manually pick and enter stop and buy orders can mean the difference between profit and loss – and certainly in degree of profit or loss. With an automated system, the trader programs in his specific parameters for trade and stop orders, and when the market hits those points, the software sends the order to the broker.

There’s another reason for using an automated trading system, though. There’s a saying that there’s no room for emotion in Forex trading. By creating an automated system that relies purely on technical data, and sends orders when that data says ‘trade’ or ‘hold,’ the trader effectively removes his own emotions from the equation.