I saw this meme the other day and it got me thinking, there were three blokes on a building site, one apprentice and two labourers. They challenged each other to a bet, how many hits would it take for them to knock a nail into timber with a hammer.

Up stepped the first labourer, he lined it up, smash! One take wonder. Hit the nail in first time. Second labourer, two hits. Then up steps the apprentice, he swings hard, completely misses and near enough falls over, causing both of the experiences labourers to howl with laughter.

I am a big believer in using tools in trading to help you, but if you don’t know when or how to use them, then you could be swinging and missing.

Here’s 3 ways tools when used correctly can help improve your trading.

1. Prevent unnecessary trades

When I first started in my trading journey I would open the screen at the end of the trading day, scroll through all the currency pairs available to me to find a market that set up with my trading strategy.

Now whilst this was mildly successful, the constant scrolling every night often led me to just trying to find a trade even if my strategy was there or not.

So, I went away and created a tool. The tool helped me identify the most likely markets to form a trend or reverse based on strength and weakness.

This tool I have used for years, and it’s a constant source of information for me. I refer to it every single day and guess what. Sometimes it works, sometimes it doesn’t. But it gave me focus, it allowed me to only concentrate on the forex pairs that were more likely to move.

This week it tells me that the Australian dollar is the strongest currency at +7, but is more vulnerable to a reversal as it's been in this position for a couple of weeks. The weakest currency is a toss up between the Swiss Franc, Euro or Japanese Yen.

Immediately I can look at AUD/CHF Long, EUR/AUD short and AUD/JPY long, the strength remains. Alternatively, if those charts look to be overextended I can look for a reversal set up at a major point of resistance or support.

2. Risk exposure

Tools should help you in multiple ways, let's think of the hammer, it can knock nails into timber but it can also pull them out. This tool can tell me when to start backing off a little. Let's take EUR/AUD as an example. On the currency strength meter AUD is +7 making it the strongest currency but in a reversal zone, EURO is -4 and is up one place from -5 the week prior, showing signs of potential strength returning. This means the EUR/AUD should be in a minor downward trend, which it is.

This means I can either short EUR/AUD in line with trend, or wait for price to reverse for a 'reversal' setup. The point is, I know this trend could be overdone because of the currency strength meter, so if I were to go short on a strategy setup I will likely use a lower risk, as the chances of a reversal is higher in this pair.

3. Reduces emotional stress

This is a big one, if you know the tool is the right one for the job then you know you can trust what it does or tells you. That can save you the emotional stress that comes with the unknowns of trading without a system or edge. If we can then bring in more confluences into the mix, then you really have a solid plan to deal with the emotions that come with trading. I make a bit of checklist when I'm in a trade.

Say I'm long USD/CAD right now on a reversal set up with the currency strength meter. The 4hr chart is in a bullish trend making higher highs and higher lows. My risk is allocated below each new swing low that forms, if that changes then I know the trade is unlikely to continue in the short term. If the CSM remains the same, I can just re-enter on a strategy set up again until it tells me otherwise.

Final Thoughts

Remember a tool is just a tool, you need to apply it in the right way to get the most out of it.

Doesn't matter if it's a super duper trading system you have bought online or got from a successful trader.

You need to understand when and why it works when it does in order to improve effectiveness and your overall trading strategy.

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