For those who trade in forex, knowing the techniques of how to forecast the forex market can be the resounding difference between those who trade successfully and those end up losing money. As soon as you start to learn about forex trading, you should also start learning how to forecast the forex trading market. When entering the forex market, it's better to come prepared - and that's when forex forecasting comes into play.
Many entities have an interest in being able to forecast the direction of exchange rates. Whether you are a business or a trader, having an exchange rate forecast to guide your decision making can be very important to minimize risks and maximize returns. There are numerous methods of forecasting exchange rates, likely because none of them have been shown to be superior to any other. This speaks to the difficulty of generating a quality forecast.
There are a few methods that are used when forecasting the forex. Each system is used to understand how the forex works and how the fluctuations in the market can affect traders and currency rates. The two methods that are most often used are called technical analysis and fundamental analysis. Both methods differ in their own ways, but each one can help the forex trader understand how the rates are affecting the currency trade. Most of the time, experienced traders and brokers know each method and use a mixture of the two to trade on the forex.
Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action. Technical analysis is concerned with what has actually happened in the market, rather than what should happen and takes into account the price of instruments and the volume of trading, and creates charts from that data to use as the primary tool. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously.
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments, whereas the fundamental analyst needs to know a particular market intimately. Fundamental analysis focuses on what ought to happen in a market.