In the world of Forex Trading, predicting the rise and fall of the currencies values is the most important factor. Before getting into the factors that can affect the currencies, let’s talk for a second about what Forex Trading is. Forex Trading is a global market for trading currencies, it is also the largest market in the world, processing trillions of dollars worth of transactions daily.
Basics of Predicting
Now that we know the basics of what Forex is, let’s get back to our main topic today of predicting the markets movements. As we mentioned before several factors affect the movement of a currencies exchange rate. It is vital for investors to be familiar with these factors, because, they will be the main information you use in your decision making. These factors are: Economic Growth, Geopolitics or political stability, Monetary Policy, Imports & Exports, and Interest rates. All of these factors alone or together can steer you in your decisions.
Identifying trends is a huge part of all trading, but especially when it comes to Forex. Trends are the general direction of a market or asset price. Trends can vary from short, to intermediate to long term. Recognizing trends can help you in many ways, as it can let you know which currencies to buy or which currencies to sell. There are three types of trends you should watch for, uptrend, downtrend, and sideways trend. Uptrend signifies the upwards movement in relation the market, and vice versa for downtrend. Sideways trend is as it sounds, it is used when a currency is neither appreciation or depreciating.
How to Analyze Forex
There are multiple ways to analyze the Forex Market before starting your trade. Regardless of which method you chose, the end goal of following certain factors and trends remains the main goal. 2 main areas of Forex Analysis are Fundamental Analysis, and Technical Analysis.
Fundamental Analysis focuses on different factors such as: Gross Domestic Product, inflation, economic growth activity and manufacturing. So, quite literally you are studying the economic stability and growth of countries in order to predict how their currency will change in value. There are some economic figures, which when announced, almost always has a huge impact on the movement of the Forex market. They are:
- Interest rates
- Situation of employment
- Budget, trade balance and treasury budget
- GDP (Gross Domestic Product)
So, factors such as decrease in employment can help you identify the signs of weak economic activity that could cause the lowering of the value of their currency. GDP is one of the principal identifiers of the strength of an economy, and a strong economy leads to increase in interest rates and currency value.
Technical Analysis is in essence is the form of trying to predict the future of a movements in Forex market by looking through the past market data, predominantly the price data. History tends to repeat itself, so there are always patterns to observe. These patterns caused by movements in price, are called signals. That’s what Technical Analysis does, it is a method to predicting the current signals of a market by examining past Forex market signals.
Here you have it, few of the important methods in predicting the movements of the Forex market for your benefit. Remember Forex trading is not a one-time get rich quick scheme, it will require you to stay up to date on the goings-on of the currencies, countries, and markets.