• Business - Your Money
  • Updated: March 07, 2024

Five Must-Have Trading Instruments for Successful Investors

Five Must-Have Trading Instruments for Successful Investors


What does it take to enjoy success within the world of online investing? Some may cite traits such as an ability to read current market conditions while others will claim that intuition and instinct must be present at all times. Although these observations are not necessarily wrong, they are only parts of a much larger strategy.

Modern traders need to be able to take advantage of the latest utilities and tools if they ever hope to remain ahead of the competition. The only possible issue is that knowing which instruments are the most useful can be somewhat confusing. Let's therefore examine five indicators, the purposes of each and the benefits that users can enjoy.

The Relative Strength Index

This first tool is often referred to by the abbreviation RSI. A relative strength index is used to determine whether a certain asset has been oversold or overbought. It will normally measure changes in price over a 14-day period and display these in a graphical format. Oversold assets can represent a potentially lucrative investment opportunity while overbought positions normally indicate a watch-and-wait strategy is the most appropriate.

The Moving Average

Anyone who is even moderately familiar with the world of online trading has likely encountered a moving average chart from time to time. These graphics are relatively simple ways to appreciate the latest price points associated with a specific position (such as a stock, an exchange-traded fund or even an entire index). Moving average charts have filtered out smaller fluctuations in order to present a more uniform perspective. Moving average charts can also be used to measure performance over a single day, a year or since the asset was first introduced.

Bollinger Bands

This next trading tool is one of the best ways to measure the volatility of a marketplace. It can also be used to determine whether conditions equate to an overbought or oversold ecosystem. Bollinger bands are presented as three separate lines. These are composed of an upper band, a middle band and a lower band. The upper and lower thresholds will normally be calculated as two standard deviations from the middle band (the average). The space between the three bands will increase or decrease in accordance with the volatility of the markets at any given time.

Price Interest Point Calculators

The most common term for this instrument is "pip calculator" and it is yet another extremely powerful utility that should never be overlooked. The intention of this widget is to convert pips (the smallest change in price that a position can make) into a real-world currency value such as dollars or euros. These calculators can be used to determine the size of a position, to appreciate the value of this position in relation to a certain currency and to predict potential profit margins. Many online trading instruments include these tools as standard instruments.

Candlestick Charts

This final utility is yet another extremely useful tool that can provide a great deal of insight within a single package. Candlestick charts were invented over 100 years ago in Japan and they are often employed to interpret the trading sentiment associated with a specific asset or position. Another interesting point to mention is that these charts will display four key metrics at any given time:

  •  The open price
  •  The close price
  •  The highest price
  •  The lowest price

The wider central portion of a single candlestick is known as the "real body". This can be used to analyse the range between the opening and closing prices of an asset. In the event that the body is red, it signals that the close was lower than the open. Green instead indicates that the asset has gained value since trading was initiated on a given day. Note that black and white can sometimes be substituted for red and green.

Candlestick charts provide a quick and easy way to monitor the performance of a position and as you might have suspected, these can also be used in conjunction with other tools such as the Relative Strength Index (RSI) that was described earlier. That’s another reason for its importance: it’s easy to combine with other tools to gather as much information as possible in a simple manner.

Only Part of the Equation

While each of these utilities offers a hands-on means to monitor the marketplace, we need to remember that experience is still required if you hope to enjoy success. Appreciating the advantages of such options is nonetheless an excellent way to begin in the right direction. 

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