Successful trading in the Forex market is impossible without correct and timely forecasting of currency rates. The analysis of course changes is a rather complicated process, the ability to perform it comes with experience. There are two main methods for performing such forecasting: fundamental and technical analysis.
Economic indicators
Assessment of the value of assets in their fundamental analysis is based on economic indicators. In the Forex market, assets are currencies of different countries, for example, the US dollar, euro, yen, etc. When predicting the exchange rate of a particular currency, the economic indicators of the respective country are taken into account, such indicators include: the unemployment rate, consumer price index, interest rate, trade balance, etc. Different fundamentals may appear in different reports. In this case, the value of a particular indicator is determined by the current situation. For example, during a period of sustainable economic growth in a country, the consumer price index is considered an important indicator.
Trading on the news
One of the methods of trading using fundamental analysis is news trading. The method is rather complicated, since the emergence of good news for trading does not always lead to the expected movements. This is due to the actions of speculators who conclude deals before the appearance of such news, they bet in advance on the appearance of specific indicators and if the market does not meet their expectations, they quickly close their positions. It is very risky to predict currency rates based on news. It is possible to conduct such a trade only if you have extensive experience in Forex.
Technical analysis
Forecasting currency rates using technical analysis consists in analyzing their price charts. Technical analysis is based on the principle “the price takes into account everything”, therefore, no economic indicators are taken into account when using it (they are already reflected in the current price value). There are many methods of such forecasting, but all of them are based on the analysis of previous (historical) price indicators.
To perform such an analysis, as a rule, special software is used to automate the process of plotting.
Technical Indicators
One of the methods of technical analysis is to use technical indicators. Indicators are charts of various mathematical models based on asset price values. These include: moving averages (a chart of price averages in a certain period of time), a stochastic oscillator (the position of the current price relative to the price range of previous periods), MACD (used to determine the direction of the price, as well as calculate its pivot points), etc. Analyzing these indicators gives the trader an idea of where the market is likely to move.
On the basis of such indicators, mechanical trading systems are often built that are able to independently determine the market situation, as well as make transactions.
Graphical analysis
Another option for technical analysis of currency rates is to use trend lines, support and resistance lines, and various continuation and reversal patterns of price movement. This method is based on an analysis of recent price indicators. Such lines and patterns help to determine in which direction the price is moving, in what range it fluctuates, where it can reverse, and where, on the contrary, it is worth waiting for the continuation of the movement, etc. The interpretation of technical analysis signals may differ for different traders. Each "player" decides for himself which trends are important for him and which signals must be taken into account. Their own trading strategies are built on their basis.
