It is not a simple task to predict foreign exchange rate. To do this to some degree of accuracy, you need to undertake detailed analysis of the marketplace trends and you may still not achieve exactly what you would like. Foreign exchange trading is a complicated market and it takes experience to do predictions that will allow you to show a profit. Forex brokers and experienced traders use various tools to try and predict the exchange rate on a daily basis. There are many who achieve this task and they gain by it, but many traders hope to make quick cash in the market and do not bother to take the time to delve into it. There are two basic methods that are used by many to attempt prediction of rates. For more effective results, many combine the two analyses.
Technical Analysis and the Foreign Exchange Rate
The technical analysis method makes use of past events to try and predict what will happen in the future. It is a proven method that has been effective. The foreign exchange market consists of human activity, reactions and emotions and humans have a tendency to react the same way when they find themselves in particular situations. This is the reason this is a fairly accurate method of analysis to use and it has proven to be fairly accurate for a very long time.
The Use of Fundamental Analysis
This method is more detailed and needs more width to the method of analysis. It uses the same data as is used in the technical method, but in a slightly different way. The accuracy of this method is on the same level as the technical method. This form of analysis places more emphasis on events linked to economic policies, political events and socio-economic policies. It also takes into account the intervention level of governments in determining the foreign exchange rate and predicted rate of different countries globally.
This method is suitable for predictions that are linked to signs that there may be a crash because of political instability in a country. Forex traders can make use of situations where there is a potential new leader in a country and whether he will have his people’s support or not should he be elected into government. It is important to keep in mind that regardless of the country where the political upheaval may be happening, all other currencies are generally also affected by any movements.
These two methods have been used very successfully by many traders to predict exchange rates. It is however a huge undertaking to be aware of global events that could affect these rates. Most people simply do not have the time or the capacity to keep up to speed with all these global events and still have time to trade effectively. It is not possible to absorb and retain all this information. It is for these reasons that many traders turn to electronic methods to help them keep up to date with events and to aid in their daily trading. You can make use of software to obtain all this information in a quick easy manner.
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