Forex predictions: how to predict the Forex market

How to predict the Forex market

In the ever changing business world, you need to be forward thinking if you want to have the potential to be successful. If you talk with thriving traders or investors in the Forex market, they will undoubtedly highlight their ability and knowledge of how to predict Forex market. Before we proceed, we need to answer the question - what is the Forex market? It is a global decentralised market for trading currencies. Moreover, it is the largest market in the world, processing trillions of dollars worth of transactions every day. The key participants in it are international banks, hedge funds, commercial companies, various central banks and, of course, retail FX brokers and investors.

Moving back to predicting movements in the market, we acknowledge that a trader must have a thorough comprehension of the factors that can affect the movement of a currency's exchange rate if they want to be successful. Remember - there is no ultimate Forex prediction formula - it all depends on your own skills, experiences and commitment to succeeding. The five factors you need to understand are:

  • Economic growth
  • Geopolitics or political stability
  • Monetary policy
  • Imports and exports
  • Interest rates

If you scrupulously trail all events, micro factors and macro factors, you have a much higher chance of success in making your predictions. But you should understand that this is not easy. There are some sites that offer so-called free Forex predictions, but you should avoid them. This article has been prepared to help you apply your FX knowledge by predicting the changing nature of the foreign exchange market in the most appropriate way.

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The trends

Being capable of identifying trends is one of the core skills a Forex trader should possess, as it can prove to be useful in making any Forex market prediction. The trend is the general direction of a market or asset price. Trends may vary in length from short to intermediate, or to long term. Being able to identify a trend can prove to be highly profitable, and the reason is that you will be able to trade with the trend. In the context of a general strategy, it is best to trade with trends. If the general trend of the FX market is moving up, then you should be cautious and attentive in taking any positions that may rely on the trend going in the completely opposite direction. A trend can also apply to interest rates, equities and different yields - and any other market that can be characterised by a movement in volume or price.

In order to make good FX predictions, we'll outline three types of trends that you need to know - uptrend, downtrend and sideways trend. For example, if the trend moves upwards in relation to the graph, then the chosen currency (USD) is actually appreciating in value and vice versa with the downtrend. If the trend moves downwards in relation to the graph, it is depreciating in value. As for the sideways trend, the currencies are neither depreciating or appreciating - they are in a stable condition. Knowing all this is an additional key to making the right Forex daily predictions.

Types of Forex analysis

There are many different ways to analyse the Foreign Exchange market in anticipation of trading. Although the categories of analysis may be quite plentiful, your task is to keep the end goal in your sight. This is to utilise the analysis to indicate good trading opportunities. We are going to describe the two main areas of FX analysis and learn even more information about them. They are closely connected with making right Forex trading predictions. It is also important to highlight that trying out both areas may help determine what method - or what degree of combination - suits your personality.

Fundamental analysis

FX fundamental analysis concentrates on different factors in the FX market. You will need to pay attention to fundamental factors such as: gross domestic product, inflation, economic growth activity and manufacturing. Thus, fundamental analysis in Forex involves studying the economic strength of various countries in order to make wise Forex predictions. It gives us information on how geopolitical and economical events influence the currency market. For example, certain figures and statements given in speeches by politicians or economists are classed amongst traders as concrete economical announcements. These can have a serious impact on currency market moves. In fact, announcements related to the economy or politics in the US are crucial to follow.

And so we come to the question of how to predict Forex movement? Fortunately, economists created the standard economic calendar, where they make daily predictions around various economic values based upon recent history. It generally contains the following data: date, time, currency, data released, actual, forecast, and previous. There are certain economic figures, which when announced, nearly always have a heavy impact on the movement of the FX market. They are:

  • Interest rates
  • Situation of employment
  • Budget, trade balance and treasury budget
  • GDP(Gross Domestic Product)

Traditionally, when a certain country raises its interest rate, its currency will consequently strengthen due to the fact that investors will shift their assets to this country in order to get higher returns. Be sure to take this into account when making a Forex prediction.

Considerable decreases in payroll employment are one of the warning signs of weak economic activity that could eventually lead to lower interest rates. This can have a negative impact on a currency. A country that has a substantial trade balance deficiency will most likely have a weak currency, because there will be sustained commercial selling of its currency accordingly. GDP is a primary identifier of the strength of economic activity. There is a connection between a high GDP figure and expectations of higher interest rates, which is positive for the currency in question.

How can a trader utilise all the points above to make Forex market predictions? First, always keep an economic calendar to hand. Then it's a matter of knowing what prediction indicator is gaining the most attention, because it will eventually become the catalyst for future moves of price in the Forex market. And finally, pay attention to news revisions - the situation on the market can change in a blink of an eye.

Technical analysis

The essence of technical analysis is that it attempts to forecast future price movements in the FX market by thoroughly examining past market data, particularly price data. The idea is that history may repeat itself in predictable patterns. In turn, those patterns, produced by movements in price, are called signals. This is the goal of technical analysis - to uncover current signals of a market by inspecting past Forex market signals. This may help traders perform daily Forex predictions. In addition, prices move in trends. Technical analysts are inclined to believe that price fluctuations are not random and are not unpredictable nature. Once a certain type of trend is established, it is going to continue for a period of time.

FX traders can rely on volume charts, price charts and other mathematical representations of market data (further referred to as studies) to discover the ideal entry or exit points for a trade. This is something else that can help a trader learn how to predict Forex.

Some of these studies help to indicate trends, whilst others aid in defining the strength and stability of that trend over time. Technical analysis can increase discipline and decrease the influence of emotions in your trading plan. It can be rather complicated to screen out fundamental impressions and stick with your entry and exit points according to your plan. Whilst no system is perfect, technical analysis provides you with what you need for Forex daily analysis and prediction, and allows you to evaluate your trading plan more objectively

Now it is a good time to define technical indicator types. The first one in the line is trend. These indicators smooth price data out, in a way that a persistent down, up or sideways trend can be seen without additional efforts. Next is the strength of the trend. This type of indicator characterises the market's intensity on a certain price by examining the FX market positions taken by different market participants. The basics of strength indicators are volume or open interest. Following strength is volatility, which refers to the magnitude of daily price fluctuations. It doesn't matter what the directional trend is here. Volatility changes are anticipated to be equal to changes in prices. Next we'll move onto cycle indicators. They identify repeating patterns in the FX market from recurrent events like elections or seasons. A cycle Forex prediction indicator determines the timing of a concrete Forex market pattern. It would be unwise for us not to mention support and resistance - they describe the levels of price where markets frequently rise or fall and then reverse. Finally, the last one in our list is momentum. These indicators define whether the trend will be strong or weak after it progresses over a certain period of time. Momentum is highest at the time a trend starts and lowest when it changes.

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Conclusion

Being able to make FX predictions is not an easy trick, and it will not allow you to get rich quickly with Forex. It requires constant analysis of the market and good skills in exploiting different kinds of approaches and software. Here we have talked about the different ways of predicting the Forex market, the role of the concept in general trading, and what benefits a trader can gain when using the best Forex prediction indicator.

By reviewing the most important types of Forex analysis, we hope to have provided you with an idea of what they stand for and their further appliance. Whilst technical and fundamental analysis are quite different, you can still benefit from using them both simultaneously.

Read also:

https://admiralmarkets.com/education/articles/forex-analysis/understanding-forex-market-analysis

https://admiralmarkets.com/education/articles/forex-analysis/introduction-to-forex-technical-analysis

https://admiralmarkets.com/education/articles/forex-analysis/introduction-to-forex-fundamental-analysis