The One Forex Trading Tool You Will Need
May 26, 2009 by Kelvin
Filed under Forex Trading Tool
I have received a number of emails from the member of my forex newsletter asking me to recommend a forex trading tool that all trader must have.
Having traded the currency for so long, I have never asked myself which forex trading tool is the most important to me because there are so many tools I used for trading that are provided by my broker. In fact, it is very hard for me to zoom down to one single tool because forex trading requires something call “confluence of events” which is the alignment of several tools to confirm a trade.
Therefore I decided to spend some time to think what tool is the one that help me the most and is the most useful.
Finally, out of the 99 forex trading tools available, the one that gets my vote is
1st : 200 EMA
Why 200 EMA? You may be asking….
The most important thing for currency trading is to be able to ride the trend. If you have been reading up on currency trading, you must have come across this sentence
“THE TREND IS YOUR FRIEND”
It is very hard for you to make money from trading if you are always going against the trend and this is the number one problem most inexperienced traders are experiencing. In fact, I am one of them when I first started forex trading.
With the help of 200 EMA, you will be able to tell the trend at the moment you are trading as well as the momentum of the trend. What else can be more powerful than this, therefore I select 200 EMA as the one forex trading tool I definitely need.
How To Use 200 EMA?
First of all, you can tell the current trend of the market by looking at the position of the price candles with the 200 EMA. If the candles are above the 200 EMA, you are looking at an uptrend and the opposite is also true.
Below is a picture of how you can identity a trend using 200 EMA.
Secondly, you can tell the momentum of the trend by looking at the gradient of the 200 EMA. The steeper it is, the more momentum the trend has. If you manage to find a high momentum trend using this forex trading tool, you should then look for opportunity to enter a trade based on the direction of the trend.
Once you grasped the idea of how to use this forex trading tool – 200 EMA, you can then combine it with several other tools that you are comfortable with to create a trading plan for yourself.
You can find out more about forex strategies here
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