How to predict the Forex market

When you are a Forex trader, the holy grail is knowing how to predict the Forex market. After all, you need to accurately predict changes if you are to use them to your advantage. You need to understand what influences the Forex markets. The five main factors are:

• economic growth
• political stability
• monetary policy
• imports and exports
• interest rates

But how do you keep track of all of these and put them into context?

Identifying trends

In order to predict the Forex market you need to learn to identify trends. The trend refers to the general direction of a market or asset price. The thing about trends is that they can change at any moment. You need to be able to predict which trends will continue and which will halt or reverse.

There are three types of trends you need to consider:

• uptrend: the currency is appreciating in value
• downtrend: the currency is depreciating in value
• sideways trend: the currency is neither appreciating or depreciating

Once you can identify trends, there are two types of FX analysis you can use.

Fundamental analysis

Fundamental analysis involves studying the economic strength of various countries and making predictions accordingly. It requires current information on geopolitical and economical events in the respective countries, as well as a grasp on how they’ll affect the markets.

 Economists created the standard economic calendar, which is where they make daily predictions based on economic historical context. The following figures always have an impact on the FX market:

• interest rates: if the interest rate is increased, investors flock to the currency to get higher returns
• employment rates: low employment rates imply weak economic activity that could lead to lower interest rates
• budget, trade balance, and treasury budget: if there is a substantial trade balance deficit the currency will weaken as traders sell accordingly
• GDP: a high GDP implies strong economic activity, and the likelihood of interest rate increases

 Technical analysis

The other type of analysis used to predict the Forex market is technical analysis. Technical analysis attempts to forecast future price movements by examining past market data. The philosophy behind it is that history repeats itself in predictable patterns. Price fluctuations that in the past have led to a certain trend will likely bring about that same trend.

Technical analysis relies on using volume charts, price charts and other representations of market data to identify the best entry or exit points for a trade. These data (or studies) help indicate trends or define the strength or weakness of a trend.

The types of technical indicators include:

• the trend
• strength of the trend
• volatility: the magnitude of daily fluctuations in price
• cycles: repeating patterns from recurrent events
• support and resistance: levels of price where markets frequently rise or fall
• momentum: whether the trend will be strong or weak after a certain period of time

The holy grail?

There is no certain way to predict the Forex market. If there was, everyone would be taking advantage of it! But by improving your Forex education, and using the assets at your disposal, you’ll continually learn what works for you. You should be able to find the data necessary through your broker.