Selecting Your Forex Forecasting Software

Alexandros Theophanopoulos
9 Min read

As a trader, you will regularly encounter the necessity of forecasting in the foreign exchange market (Or Forex/FX). It is important to have at least an idea of potential profits in your future trades. In order to benefit from trades by forecasting FX, you need to be able to use proper Forex forecasting software.

Forex Forecasting Software: An Introduction

It is an analytical tool used by currency traders to assist them with FX trading analysis through indicators and charts. This software provides traders with charts of different currency pairs that display changes in prices over a period of time, as well as indicator overlays which include moving averages, that aid analysts and traders in defining the most appropriate and beneficial entry-exit points for their trades.

FX charting software is used by technical analysts to predict the future movements of prices in the market. There is a wide range of FX charting software available which is used for forecasting currency prices, and each offering will vary mostly in appearance and functionality. The majority of Forex brokers permit you to open a demo trading account before funding a full one, which enables you to try out different types of software during a trial period, to see which forecasting software best suits your needs. We have prepared this article to assist you in selecting the best software for Forex forecasting.

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Forex Forecasting Software: MetaTrader 4 Features

The analysis of various financial markets without technical indicators is almost impossible, and the Forex market is no exception. Technical traders rely on indicators in order to forecast upcoming moves within the charts. This is where MetaTrader 4 (MT4) excels, as it offers a wide range of tools for technical analysis. These indicators fall under the four following categories:

Oscillators

Oscillators are an essential part of any good Forex forecasting software. An oscillator is a tool for technical analysis that is bordered between two extreme values, and built with the results technically from a trend indicator for finding short-term overbought or oversold conditions. If the value of the oscillator approaches the rate of the upper extreme value, the outcome is that the asset is considered to be overbought, and if it reaches the lower extreme it is viewed as being oversold.

These indicators can be most advantageous when a clear trend cannot be seen without certain efforts in a company's stock, for example, when it trades sideways or horizontally. The Stochastic Oscillator, the RSI, and the ROC are the most common ones used within the Forex trading community.

The Stochastic oscillator compares where the price of security closed most relative to its price range over an available period of time. This technical indicator is presented in two lines. The main one is called: %K, while the second one is: %D, and is a moving average of %K. The main line is often displayed as a solid line, whilst the second line looks like a dotted one.

The RSI (Relative Strength Index) is another representative of Forex forecasting software. It is also often called a momentum oscillator or a technical momentum indicator. It performs a comparison of the magnitude of recent gains to recent losses accordingly, in an attempt to define overbought and oversold conditions of a certain asset. RSI is calculated through this formula: RSI = 100-100/(1+RS). RS is an average of x days' up or down closes.

And the last one - ROC. The Price Rate of Change measures the change in percentage between the most recent price X periods in the past. The following formula exists in order to calculate it: (Closing price today - Closing price X periods Ago) / Closing price x periods ago. As the ROC measures the extent of change or the strength of momentum change, it is classified as a price momentum indicator.

Trend Indicators

The next type of indicators we will look at are trend indicators. These are technical indicators which point towards the future direction of the traded asset price. When a Forex trader knows the current direction, they are able to make observations about the future price actions of the currency pair being traded. Put simply, your task is to find out the prevailing trend so you can trade it. Here is a list of the most popular trend indicators which you can use as part of your software for Forex forecasting:

  • Moving Average
  • MACD
  • DMI

Starting with the Moving Average, this is the most widely used technical analysis indicator. It assists in smoothing out price actions by gradually filtering out the 'noise' from random price fluctuations. The two most commonly used moving averages are the SMA, which is the simple average of a security over a determined period of time, and the EMA, which gives more weight and preference to more recent prices.

The MACD (Moving Average Convergence Divergence) is a trend momentum indicator that displays the relationship between two moving price averages. The last one we want to draw your attention to is the DMI - The Directional Movement Index (Or Average Directional Movement Index). This indicator, developed by J. Welles Wilder, identifies when a determinable trend is present within a certain instrument (i.e the DMI enables to us work out whether a concrete instrument is trending or not).

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Forex Forecasting: General Opinion

Choosing good software for FX forecasting can be the key to making useful and profitable predictions in market movements, especially as the foreign exchange market is always changing. When it comes FX forecasting software, there are a lot of traders who simply jump in and buy what they don't fully understand.

You need to know exactly what you are looking for, how to use the software, and you also need to know where to find high-quality software that actually works. If you see a link labelled as 'free Forex forecasting software', be realistic about the quality you can expect from this type of software - think along the lines of 'you get what you pay for'.

In turn, there is another trap you need to be aware of. There is a lot of commercial FX forecasting software that promises to provide you with 100% precision in market analysis. Do not fall for such scams, as these types of software are not developed by traders, they are in fact supplied by online marketers that attempt to unfairly benefit from beginner traders. Here are the main rules to follow while searching for forecasting software to suit your needs:

First of all, you need to check whether the software you are interested in is updated. For instance, if it has not been updated in over a year, this points to the fact that the software is already behind the curve of power, and is likely to provide you with incorrect predictions. As for charting, this should be one of the decisive factors when choosing Forex forecasting software. Make sure to check whether the selected software handles charting.

It should generate at least the minimum of tools for constant usage like the Stochastic Oscillator, Moving Averages, and the RSI. There may even be additional features accessible for the typical user. Furthermore, the FX prediction software must have customer feedback or testimonials from those who have been using the selected product. Check to see whether traders using this software are actually making money. In addition, you should check out the GUI (Graphical User Interface).

Make sure it looks good and that you are able to monitor a large amount of information at once. At this point, it's beneficial to have access to a demo trading account to make sure that everything you require works. And the last thing you should pay attention to is whether the FX forecasting software can really prove useful for you personally. It needs to suit your style of trading and actually assist you in terms of making profits.

Conclusion

We have looked at how to select software for Forex forecasting and the most popular indicators that are directly connected with it. We have also discussed the main steps a trader should take to ensure that they choose the right software - what to pay attention to, and what the crucial features are. We hope that this article has been helpful, and we wish you good luck in your future trades.

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