This article looks at technical and fundamental methods to predict forex rates.
It is not an easy task to predict forex rates. To obtain a method that provides accuracy, you would need to undertake detailed market trend analysis and even after you have done that, it may not be possible to achieve this goal.
The foreign exchange market is a complicated one. To do accurate predictions where you know you will benefit by showing profits requires that you have suitable market and trading experience. There are many available tools that can be used to try and do accurate forecasts of forex rates. Traders seem to favour two methods, with some believing that a combination of the two is the best method.
Technical Prediction Methods
Technical analysis is based on the premise that you can take historical data and predict future events based on that. This ‘history repeats itself’ method has proven to be extremely successful for many traders, for a long time. It is stated that the method works because humans are creatures of habit and will respond in the same way each time they are confronted with a similar situation. Since humans operate in the forex rate, it makes perfect sense to use this method.
Predict Forex Rates With Fundamental Analysis
This method requires more detailed methods than technical analysis. The data that is used can be compared to that used in technical analysis, but there is a small twist to it. The level of accuracy of this more involved method is said to be the same as the technical method. Fundamental analysis places its focus on the broader aspects of the economic climate within a country. It focuses on the political and social events as well. It takes into account the intervention of the central banks and the predicted rates of other global countries.
Political changes in a country can have an impact on its forex rates. This often happens when there is a leadership shift in a country which is normally followed by some form of uncertainty amongst the citizens. This negative reaction could affect the country’s currency value. Normal political instability in countries is normally ignored as this occurs in most countries.
Many traders make use of both methods to obtain a broader view of the market. Doing fundamental analysis is an extremely time consuming method because of the range of data required. Many traders simply do not have the available time for this. Novices in the trading market who attempt to use this method of analysis often become confused by all the data they have to keep up with. This pushes many traders who prefer this analysis method to turn to automated methods to stay on top of all the news events and announcements. You can make use of software to obtain all the relevant information.
It is imperative that you find the most suitable analysis and charting methods for your trading style. The methods you use will depend on the timeframes you intend trading. You may want to opt for technical analysis initially as it is a much simpler method. Once you have gained sufficient practical experience in the trading market, you may want to consider moving on to the more complex analysis methods.