Forex traders who base their trade plans on technical analysis often require support from specialized technical analysis software programs. Some more sophisticated forex technical analysis software packages also offer a number of different types of functionality to their users.
The following sections describe the most common and useful types of software used by technical forex traders and what advantages they can convey to their users.
Just about any trader who wishes to base their trading decisions on technical analysis will need to have some charting software on hand. Such software typically allows the visual analysis of historical price action and the calculation of technical indicators that can be used to generate objective trading signals.
Furthermore, most charting packages these days allow for the regular updating of exchange rate information if connected to the Internet.
Basically, any decent charting software package should provide the following features to allow a technical trader room to grow with their software as their sophistication increases:
- Graph different chart types, especially bar and Candlestick charts.
- Provide exchange rate data of various time periods that includes observations made each hour, day, week and month at a minimum.
- Allow a trader to find out more information about a particular price level by placing their cursor over it on the chart.
- Includes a good variety of popular technical indicators such as moving averages, the Relative Strength Index and Bollinger Bands.
- The ability to annotate charts with comments and save them as pictures.
More advanced examples of charting software that incorporates trading platform functionality now also allow traders to automate their trading systems using programming languages or to deal forex directly from charts.
Chart Pattern Recognition Software
A fairly recent innovation in technical analysis software is the ability of computer programs to scan for, recognize and then analyze classic chart patterns occurring on forex charts. This software often employs rather advanced pattern recognition algorithms to first identify the chart pattern, then compute its trigger levels and price objectives and then notify the user of its existence.
Furthermore, some such pattern recognition software might be designed to work with specific chart pattern analysis techniques. An example would be Elliott Wave Theory chart analysis packages that can help users identify wave counts, as well as compute retracement and projection objectives.
Forex Signal Generator Software
Those forex traders who have not yet developed a trade plan might be tempted to turn to the forex signal generator software packages now being actively marketed to novice traders.
Since the vendors of these programs generally do not explain their methods, the software therefore incorporates so-called “black box” algorithms since you do not actually know why the system generates a signal to trade.
Nevertheless, following such an off the shelf trading system can provide newer traders with a certain amount of discipline and objectivity when trading that can be beneficial.
Such software usually provides traders with trading signals that tells them which currency pair to trade and in what direction, as well as where to take profits and stop losses. Some packages also perform position sizing.
Trading Robot Software
Some more sophisticated traders might truly benefit from being able to automate their existing profitable trade plans by programming them into a suitable trading platform that supports such functionality to create a so-called forex trading robot.
Nevertheless, many forex traders with less experience have been tempted to try to make money on autopilot using one or more of the numerous commercial forex trading robots now on the market.
In general, these commercial robots are readily downloadable from the Internet, and they often cost under $150 to purchase. They also usually run as Expert Advisors or EAs within the popular Metatrader 4 forex trading platform to facilitate the automatic execution of forex deals. Read a review of the Metatrader 4 forex platform.
Nevertheless, despite their low initial cost, many customers wind up being dissatisfied with their commercial trading robot’s inconsistent performance since the pre-programmed software can often have a hard time adjusting to different market conditions.
Thankfully for professional forex traders perhaps, human traders still seem more adaptable and hence more successful than these robots when trading, provided of course that the trader has developed the discipline to manage their risk wisely.