Trying To Forecast Forex Rates Is An Acquired Skill

Trying to forecast Forex rates is an acquired skill

It's not easy to forecast the Forex markets, but it's what thousands of Forex traders and
brokers do every day, with varying degrees of success. Like forecasting the weather,
predicting the Forex market is sometimes a crapshoot, sometimes a guessing game, and
always an adventure.

There are two basic philosophies on how to forecast the Forex markets. One is technical
analysis; the other is fundamental analysis. We'll look at them both.

The technical approach examines past market action and uses that data to predict the
future. Previous trends in most areas of life are almost always good indicators of the
future; Forex is no different. People have not changed much in the decades since the Forex
market was created. People still buy and sell and react to stimuli in much the same way as
they did 50 years ago.

Since Forex rates change constantly throughout the day, every day, looking at all the years
of past data can be daunting. Smart analysts learned to look at the big picture, to skip the
minor details and examine trends over a longer period of time.

Using fundamental analysis to forecast Forex markets is a bit more in-depth, but it can
also be highly accurate. Basically, fundamental analysis means forecasting the market
based on external factors -- political moves, government involvement, social movements,
even the weather. Someone good at fundamental analysis might forecast Forex drop-offs
because he knows a country's government is unstable at the moment, or increases
because the country has just elected a popular new leader. Anything that can affect a
nation's economy can affect the exchange rates, and that's what a fundamental analyst
uses to guess at the Forex market's future

Naturally, this means having to know a particular country in-depth, which is hard to do
for more than a few countries at a time. (It becomes even more complicated when trying
to forecast the euro, since several different countries use that currency.) But having that
kind of intricate knowledge makes it much, much easier to forecast Forex trends.

Most good traders use a mixture of both processes, technical and fundamental. For
example, a trader might see that a country is currently facing a particularly strong
hurricane season (fundamental) and know that in the past, strong hurricane seasons have
meant a weaker economy for that nation (technical). Thus, he can predict down-turns for
that nation with some degree of confidence.