If you have just been encouraged to enter the world of forex trading and want to make the most out of the world's most liquid and largest financial market, this piece of information on how to forecast forex trading will be helpful to you in more than just a way.
Before we read any further, let us read about foreign exchange market and forecasting so that all of us are on the same knowledge platform.
Foreign exchange market is the world's largest and most liquid of all financial markets and involves daily transactions of over 3 trillions USD. The forex market has no central exchange or physical location and is facilitated by forex brokers and forex transactions are executed through an electronic network of banks, corporations and individuals trading one currency for another.
Forecasting, on the other hand, is all about predicting present and future market trends by making the use of available facts and data. Analysts in the world of forex trading depend upon technical resources and fundamental statistics besides basics of foreign exchange for predicting the movements of world economies.
Now that we have read about foreign exchange market and forecasting, let us return back to our primary topic - how to forecast forex trading.
Forex traders can gain significant leads when they are well-versed with the art of forecasting the forex. For making the right moves, a forex trader can make use of many methods. Each of these methods is aimed at understanding how the forex works and how the market movements can affect currency prices and to what extent. Two of the most popular methods to forecast the forex trends are technical analysis and fundamental analysis.
Under technical analysis, a forex trader has a close look at chart and graph trends that signify past market events. Some of the popular considerations are indicators, number theory, waves, gaps, and trends. The system demonstrates a highly accurate, though not always the best, picture to help traders make better and informed decisions in the future. During this analysis, a trader considers factors such as demand and supply forces, present political scenario, price movement trends, and prevailing forex market trends. Since most of these factors repeat themselves, accuracy of formulated predictions stays high.
A beginner to the world of foreign exchange trading may find it difficult to accurately interpret technical analysis but experienced traders can make well-informed decisions and offer qualified advice based on findings of technical analysis.
Fundamental analysis, on the other hand, is all about forecasting the future of currency price movements that are based on events yet to take place but expected. These events may be pertaining to economic, social, natural, and political scenarios and hold good for predicting the forex rates and influence of forces of demand and supply on these rates. This analysis is less reliable than its technical counterpart but is often used in a combination with technical analysis to form opinions and predict market movements in context to forex trading.