Trying to forecast forex rates is an acquired skill

Trying to forecast forex rates is an acquired skill

It’s not easy to forecast the forex markets, but it’s what thousands of forex

traders and brokers do every day, with varying degrees of success. Like

forecasting the weather, predicting the forex market is sometimes a crapshoot,

sometimes a guessing game, and always an adventure.

There are two basic philosophies on how to forecast the forex markets. One is

technical analysis; the other is fundamental analysis. We’ll look at them both.

The technical approach examines past market action and uses that data to

predict the future. Previous trends in most areas of life are almost always good

indicators of the future; forex is no different. People have not changed much in

the decades since the forex market was created. People still buy and sell and

react to stimuli in much the same way as they did 50 years ago.

Since forex rates change constantly throughout the day, every day, looking at all

the years of past data can be daunting. Smart analysts learned to look at the big

picture, to skip the minor details and examine trends over a longer period of time.

Using fundamental analysis to forecast forex markets is a bit more in-depth, but it

can also be highly accurate. Basically, fundamental analysis means forecasting

the market based on external factors -- political moves, government involvement,

social movements, even the weather. Someone good at fundamental analysis

might forecast forex drop-offs because he knows a country’s government is

unstable at the moment, or increases because the country has just elected a

popular new leader. Anything that can affect a nation’s economy can affect the

exchange rates, and that’s what a fundamental analyst uses to guess at the forex

market’s future

Naturally, this means having to know a particular country in-depth, which is hard

to do for more than a few countries at a time. (It becomes even more complicated

when trying to forecast the euro, since several different countries use that

currency.) But having that kind of intricate knowledge makes it much, much

easier to forecast forex trends.

Most good traders use a mixture of both processes, technical and fundamental.

For example, a trader might see that a country is currently facing a particularly

strong hurricane season (fundamental) and know that in the past, strong

hurricane seasons have meant a weaker economy for that nation (technical).

Thus, he can predict down-turns for that nation with some degree of confidence.

 

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