Forex Forecasting - Do You See Green In My Future?

By: Michael Williams

Something that can help a Forex trader better predict price movements are what is called Forex forecasting. When you have such a high paced and chaotic environment has the Forex market, a tool such as Forex forecasting can be a great benefit. Forex forecasting uses both types of analysis, technical and fundamental. Although when they combine both types, this is when Forex forecasting gets its best results.

The reason that Forex forecasting uses fundamental analysis is because this type better predicts future price movements. When using this type of analysis it is very important to look at economic, political, environmental and other relevant external factors that have a direct or indirect effect on supply and demand. Someone who analyzes using this type of analysis has to be someone who is very skilled. This is because in the Forex market, when using this type of analysis for Forex forecasting they have to be able to predict fairly accurately what the price of currency should be based on external factors, not the actual current price.

On the other hand Forex forecasting involving technical analysis has a bit of advantage in basing its predictions on past market fluctuations. This makes it more based on factual information, rather than hypothetical like fundamental analysis is. Another advantage of this type of analysis is that they can look at several different markets and indicators at the same time. When using Forex forecasting with technical analysis you must remember three things. These three things are that there are no surprises when using this type of analysis. Also when using this type of analysis the specific patterns are followed, which the market is based on, it is easier to predict a repeat of these patterns and successfully use this to your advantage. Lastly these patterns are a direct reflection of human psychology.

Details involved in technical analysis involves five different and distinct theories in order to be used in Forex forecasting. These theories include indicators such as oscillators (i.e. Relative Strength Index theory), the number theory including Fibonacci numbers and Gann numbers, waves such as the Elliott wave theory, gaps such as high-low and open-closing theory and trends such as following the moving average theory.

Regardless of all the theories that can be used in forecasting or which method is used, a lot of data and research goes into it. The use of new software and the readily available historical information can definitely make Forex forecasting a lot easier now then it used to be.

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