Forex Forecasting and Market Analysis

Sounds pretty easy, doesn’t it? Unfortunately, it’s not. While it may be accessible, forecasting the Forex market isn’t at all easy and those that do it --even those that are great at it-- see varying levels success.

Technical and Fundamental Market Analysis

There are two central philosophies key to forecasting the Forex market: technical market analysis and fundamental market analysis. Technical analysis is most commonly used in day trading, and works just as it sounds; this approach uses data from past market action to predict what the market will do in future. This works with the Forex market just as it would in any other area-- in most industries, previous trends are great indicators of what the future will bring because people are consistently motivated to buy and sell in the same ways.

In general, technical Forex market analysis uses five different theories in forecasting the market. These theories include:

1. Number theories (such as Fibonacci numbers and Gann numbers),
2. Wave theories (such as Elliott),
3. The moving average theory,
4. Oscillator theories (such as the Relative Strength Index theory), and
5. Gap theories, such as high-low and open-closing.

Fundamental Forex market analysis is more intuitive and in-depth than technical analysis, but no less accurate-- it works especially well for long-term trading. In essence, fundamental analysis uses external factors, such as government action, political and social movements, etc., to forecast what a particular currency will do. This requires an in-depth understanding of the policies of the countries involved, and an ability to see that information for how it may affect a particular currency. Since anything that affects a country’s economy will affect its exchange rate, fundamental analysis is very important-- but you need a bit of skill to pull it off successfully.

Essentially, technical analysis works best for instinctual math types-- those of you who look at the market and see a string of significant numbers. Fundamental analysis works well for those that like to look at the bigger picture-- why the market does what it does. Your best option? Use both. Combining the math with the big picture gives you a pretty accurate idea of what a particular market is likely to do.

Using Forex Forecasting Services and Software

If you don’t have the time for technical Forex market analysis or the skill or knowledge for fundamental analysis, what do you do? You can’t just guess at the market with no knowledge of what is likely to happen-- doing that is like begging to be taken to the cleaners.

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A good compromise is to use a Forex forecasting service or software to predict what the market will do. A Forex service uses both technical and fundamental analysis to provide investors with information about currency pair trends, changes in government policies, etc., and how they will affect the market. A Forex forecasting software uses more technical analysis, however, and isn’t subject to bias the way a human forecaster might be. Learn more about online Forex trading software here

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