Is it possible to forecast the price movement in Forex? Yes! Basic Forex forecast methods: Technical analysis and Fundamental analysis
To be able to forecast with technical analysis in this way with a
high success ratio requires a deep understanding of price movement, why
it does what it does and what happens when it doesn’t move in the way
that has been predicted. Some methods are based around Elliott Wave, time cycles and more.
If you don’t know what you are doing then you can end up making very bad trades. How long would it take to forecast accurately utilizing 100% technical methodologies? At least 5-10 years depending on the individual’s analytical skills.
So does that imply that new traders should base their trading on fundamental analysis alone? Indeed not. Thus, for the new trader it is important to incorporate both elements
into trade decisions.
However, the bigger problem for traders is knowing when to enter and where to place stops. The only solution is technical analysis. Since the process of understanding how to use technical analysis will take time it can be useful to subscribe to a technical service. Since probably 80% of traders are not analytical in nature it could be that most traders will find it useful to subscribe to an analytical service permanently and will need to try several services to see which suits their own personal style of trading.
The key to successful and profitable trading is study and that means hard work. It is well know that trading is a stressful profession and that in itself implies that it is not a simple pastime, even for institutional traders who have a wealth of information at hand. However, there is enough information available to private traders these days and for the savvy who do their homework, there are good profits to be made.Technical analysis is built on three essential principles:
1. Market action discounts everything! This means that the actual price is a reflection of everything that is known to the market that could affect it, for example, supply and demand, political factors and market sentiment. However, the pure technical analyst is only concerned with price movements, not with the reasons for any changes.
2. Prices move in trends Technical analysis is used to identify patterns of market behavior that have long been recognized as significant. For many given patterns there is a high probability that they will produce the expected results. Also, there are recognized patterns that repeat themselves on a consistent basis.
3. History repeats itself
Forex chart patterns have been recognized and categorized for over 100
years and the manner in which many patterns are repeated leads to the
conclusion that human psychology changes little over time.
Fundamental Analysis:
Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments, whereas the fundamental analyst needs to know a particular market intimately. Fundamental analysis focuses on what ought to happen in a market. Factors involved in price analysis: Supply and demand, seasonal cycles, weather and government policy.
The fundamentalist studies the cause of market movement, while the technician studies the effect. Fundamental analysis is a macro or strategic assessment of where a currency should be trading based on any criteria but the movement of the currency's price itself. These criteria often include the economic condition of the country that the currency represents, monetary policy, and other "fundamental" elements.
