How we can do forex market predictions
The entire game of forex trading is based on price prediction. Forex traders watch the market with the aim of making the right prediction and making money.
However, mastering the art of prediction is not a simple task. A right prediction may result in a huge profit, while a wrong prediction may blow your entire account.
Beginners generally face problems in predicting the market. So, this blog will teach you how we can make forex market predictions with examples. It will help you understand the complex concept of predictions simply and embrace the power of prediction in the dynamic market.
Understanding the concept of Forex Predictions
Prediction generally estimates future conditions by analyzing historical data to make the right decision. The concept of prediction applies to different fields, including the financial market, the gaming sector, technological development, and others.
Have you ever seen the weather forecast? It explains the concept of prediction very well. In a weather forecast, a team of people watches different natural conditions, historical data, and statistics to predict the weather of upcoming days.
Similarly, the core concept of trading in financial markets, such as stocks, cryptocurrencies, forex, indices, ETFs, and other derivates, is also based on prediction.
A quick glance
A Forex Prediction is the examination of data and information that directly or indirectly affect the currency market to estimate the rise or fall of a currency pair.
- Watch Economic Events
- Monitor Price Action
- Consider trend as your friend
- Use technical analysis indicators
- Analyze Market Sentiments
- Use forex prediction software
- Inflation
- Gross Domestic Product
- Interest Rate Decisions
- Employment Data
- Monetary Policy
- Trade Balance & Manufacturing Reports
- Financial News
Price action is a strategy where traders make forecasts based on the price movement of a currency pair over a period.
- Bollinger Bands
- Relative Strenght Index
- Moving Averages
- Stochastic Oscillators
- Fibonacci Retracements
What is a Forex Prediction?
A Forex Prediction is the examination of data and information that directly or indirectly affect the currency market to estimate the rise or fall of a currency pair.
A forex trader studies different fundamental, technical, economic, and geopolitical factors to make buying and selling decisions.
Let us understand the forex market forecast with an example. Suppose an XAUUSD trader was looking for opportunities to open a trade. The trader was watching Israel—Iran conflict, which significantly impacted XAUUSD trading.
According to traders’ analysis, the conflict between the two nations is expected to arise. Conflicts and war have a positive impact on gold prices.
As a result, the trader will buy the XAUUSD pair according to the prediction. If the prediction goes right, he will earn a profit. However, like in the weather forecast, forex predictions can also go wrong, and he can also lose money if the market moves against his prediction.
How we can do forex market predictions
A novice may struggle to predict the rise and fall of a currency pair’s exchange rate. Even intermediate and experienced traders face difficulty predicting the always-changing market.
However, worry not; you can make forex forecasts in a number of ways. Here, we will discuss what moves the forex market and the popular way to predict these movements. It will help at every stage of your trading journey. So stay tuned.
Watch Economic Events
When dealing in the forex market, economic events are the major indicators of price movement. A currency pair’s price moves greatly due to a country’s economic and financial condition.
A country’s economic health is determined by the reports and data realised periodically. Positive data or economic reports increase the currency price, while negative data is expected to devalue the currency. Here are the top data to watch to predict the currency market:
- Inflation
- Gross Domestic Product
- Interest Rate Decisions
- Employment Data
- Monetary Policy
- Trade Balance & Manufacturing Reports
- Financial News
Example:
Suppose you want to trade in the EUR/USD pair. The Non-farm Payroll data is going to be released soon, so you are waiting for it.
In this case, if the data release is higher than the previous it will be positive for EUR/USD; as a result, you will open a short position, and vice versa. Similarly you can watch the other data and make the trade decision accordingly.
Monitor Price Action
Price action is a popular forex market prediction strategy. In this strategy, traders make forecasts based on the price movement of a currency pair over a period.
In the forex market, prices react similarly in similar market conditions. That is why traders watch price movements with the hope that history will repeat itself. One can identify the price movements using the following tools:
- Forex Charts
- Candlestick Pattern
- Highs and Lows
- Support and Resistance
- Trading Divergence
Example:
Suppose you are watching the forex market, and the price has broken the strong support for the EUR/USD pair. It indicates that bears are in a strong position in the market, and the price is expected to fall further. That means there are potential opportunities for selling the pair.
Consider trend as your friend
A trend can be defined as the prevailing direction of a currency pair’s price over a period. There are majorly three major types of trends: uptrend (bullish), downtrend (bearish), and neutral (sideways).
Current market trends can help traders determine future price movements. A trend can be strong or weak, short-term, medium-term, or long-term. A trend line can help you identify highs or lows, spot chart patterns, and support and resistance. It ultimately helps you make the right forex predictions.
Use technical analysis indicators
Technical analysis indicators are the statistical tools that provide key insights regarding the asset price movement. It provides information including support and resistance levels, overbought and oversold conditions, market volatility, etc.
These indicators’ findings are based on mathematical calculations and statistical concepts. You may have heard that number never lies, and that is quite true. Therefore, indicators are the most effective ways to organise daily forex analysis and predictions. Here are popular technical analysis indicators to predict the market:
- Bollinger Bands
- Relative Strenght Index
- Moving Averages
- Stochastic Oscillators
- Fibonacci Retracements
Example:
Suppose a person is trading in GBP/EUR pair. He has used the combination of Bollinger bands and the Relative strength index to get indicator interpretation. The prices are moving near the upper Bollinger bands and above 70 in RSI. Both indicators indicate overbought conditions, suggesting bearish sentiments for the pair.
Analyze Market Sentiments
Sentiments are the most crucial components of forecasting. Forex market sentiments refer to how most people feel about the currency pair’s future price movement. People’s sentiments drive the forex market.
A positive sentiment shows people’s belief in the currency; hence, it is positive for a currency. Meanwhile, negative sentiments show people’s disbelief in the currency; hence, they are negative for a currency.
Market sentiments help you to predict with accuracy. However, one thing to remember here is that analyzing sentiments and following the crowd differ. So do not blindly follow the crowd and make predictions as per your own analysis.
Use automated software
Even after understanding all the fundamental, sentimental, and technical analysis tools, many traders may find it difficult to forecast the forex market. Such traders can use automated software and tools to make predictions.
A range of the best free forex prediction software is available on different platforms. After analysing the historical data, these tools will provide you with key insight into the forex movements.
One can use this software to get an overview of the market; however, making trade decisions solely based on it is not a good idea. This software does not take the current market conditions into account. Also, human intelligence is a must to predict the market effectively.
Wrapping Up
Predictions can differentiate gamblers from traders. A gambler gambles based on instinct or guesswork. A trader also makes predictions, but the approach makes the difference. A trader uses market analysis and knowledge to make predictions.
Remember, trading is a professional occupation; you are putting your hard-earned money in the market. Right prediction can give you a good profit and save you from big losses. So, embrace the power of fundamental, technical, and sentimental analysis to make forex market predictions.