How to Predict Forex Market Movements

Forex is one of the most volatile markets that presents a number of exciting investment opportunities for traders. Many successful traders attribute their success to their ability to skillfully predict forex market movements. If you want to profit from this type of trading it is essential to have a fair understanding of various factors that influence currency price movements. In addition, there are useful tools and charts to help predict even the slightest fluctuations, which sometimes can give you the opportunity to earn significant profits and avoid losses.

Factors such as geopolitics, economic growth, interest rates, capital flow, trade flow, and interest rates are few of the common factors that can have an effect on the forex market and currency pairs. When it comes to Forex, predicting even the next 5 minutes is difficult while no one can really do much but speculate. However, using a combination of technical and fundamental analysis it is often possible to predict forex market movements correctly although not always with 100% accuracy.  It requires a deep understanding of currencies and price movements or else you could end up with bad trades.

Predicting Forex Market MovementsPay keen interest to interest rates

One of the major factors to influence the forex market is interest rates. Any rise in interest rates can increase the value of a country’s currency, which leads to capital appreciation and better opportunities for investors to profit. For example, if there are indicators that the US interest rate is likely to fall, it is important to make sure that if you choose a USD/GBP currency pair, the British interest rate should not be in the same position. News about interest rates travels fast and can have an equally rapid effect on the forex market. If the interest rate does not fall as much as expected there could be a positive price movement.

Fundamental analysis to predict price movement

Economic growth is another important factor to consider. The central banks of countries with a strong economy are likely to raise interest rates and arrest inflationary growth. High interest rates invite more investments in the financial markets, which leads to an increase in demand for the currency of that country and subsequently the currency’s exchange rate. Political disturbances in a country can also lead to fluctuations in the exchange rate. In addition, a country’s capital flow and trade flow are also factors that can affect exchange rates. International trade and mergers and acquisitions can also create a demand for currencies, which as an economic rule leads to an increase in prices.

Technical analysis and breakouts

Forex traders also use a variety of technical analysis tools provided by brokers and charting services. Although they may look impossible for the beginner to understand, they are not difficult to learn how to decipher. There are charts based on:

  • Indicators such as oscillators used to indicate overbought and oversold conditions on a scale of 0-100%.
  • Elliot wave theory
  • Number theories – Gann and Fibonacci numbers
  • High/low and open/closing gaps
  • Trends where rising peaks and troughs indicate an upward movement in prices while falling peaks and troughs indicate downward movement.

There is no doubt that many profitable trades in the forex market are made based on some kind of technical or fundamental analysis or a combination of both. The key is to spend time understanding the finer aspects of these analyses so that you may be able to predict forex market movements more accurately.  Sometimes you don’t have to predict anything. Trends start and continue from breakouts, and you can use these price breakouts of market highs and lows to your advantage and make money.

Share this post:
Leave a Reply