HomeIt's not easy to forecast the forex markets, but it's what thousands of forex
traders and brokers do every day, with varying degrees of success. Like
forecasting the weather, predicting the forex market is sometimes a crapshoot,
sometimes a guessing game, and always an adventure.
There are two basic philosophies on how to forecast the forex markets. One is
technical analysis; the other is fundamental analysis. We'll look at them both.
The technical approach examines past market action and uses that data to
predict the future. Previous trends in most areas of life are almost always good
indicators of the future; forex is no different. People have not changed much in
the decades since the forex market was created. People still buy and sell and
react to stimuli in much the same way as they did 50 years ago.
Since forex rates change constantly throughout the day, every day, looking at all
the years of past data can be daunting. Smart analysts learned to look at the big
picture, to skip the minor details and examine trends over a longer period of time.
Using fundamental analysis to forecast forex markets is a bit more in-depth, but it
can also be highly accurate. Basically, fundamental analysis means forecasting
the market based on external factors -- political moves, government involvement,
social movements, even the weather.
Someone good at fundamental analysis might forecast forex drop-offs because
he knows a country's government is unstable at the moment, or increases because the country has just elected a popular new leader. Anything that can affect a nation's economy can affect the exchange rates, and that's what a fundamental analyst uses to guess at the forex market's future Naturally, this means having to know a particular country in-depth, which is hard to do for more than a few countries at a time. (It becomes even more complicated when trying to forecast the euro, since several different countries use that currency.) But having that kind of intricate knowledge makes it much, much easier to forecast forex trends.
Most good traders use a mixture of both processes, technical and fundamental.For example, a trader might see that a country is currently facing a particularlystrong hurricane season (fundamental) and know that in the past, stronghurricane seasons have meant a weaker economy for that nation (technical).Thus, he can predict down-turns for that nation with some degree of confidence.
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