Predicting market change is the key skill that any trader would love to excel in. Wouldn’t it be easy if there were one formula that would unlock the secrets to predicting change in the market? Just think, we could all be millionaires if we knew how to determine which way the market would move at any given time. Well, that’s just the point. There is no way of knowing and if someone tells you there is a way, that person is probably charging money for that piece of advice. Run away as fast as you can! Because here’s the deal: while there is no one way, there are several pieces of information to review that can lead you in the right direction.
Relative Economic Strength
This approach to trading watches the economic strength of different countries. The clue here is that if a country enjoys and encourages an economically strong environment the result will likely be a high growth rate. This is what foreign investors are looking forand what leads them to a specific country. However, now get this, in order to invest in that country, the investor needs to buy that country’s currency. Just by the act of purchasing foreign currency, a demand is created that could very well raise the price of that currency. Other factors that draw investors are favorable interest rates. So match up a good national economy with business investors and you can hypothesize that by creating demand, the value will stay steady or even increase.
Patterns and Trends
The forex investor is always watching for trends in prices. The Time Series method is a technical formula for predicting price behavior, movement and patterns in the future by looking at past price patterns and behavior. Parameters are entered into a computer program, which in turn spits out estimates of what the market might do. Other methods rely on identifying trends in interest rates, various yields and equities. The forex trends that help predictions are uptrends, downtrends and sideways trends, which are different relative movements on a graph.
Fundamental Analysis as a Predictor
In this case, traders will pay close attention to inflation rates, gross domestic product, economic growth and manufacturing. In other words, looking at the economic growth of a country. Other factors that can move the market overnight are geopolitical or economic events, such as political speeches or the latest financial releases.
Economists have created what is called a standard economic calendar, which takes into account the different economic values of a currency based on recent history. The data considered includes the time, date, data released, currency, actual prices, forecasted prices and previous pricing. They put those figures together with the country’s interest rates, the unemployment rate and the trade balance, including the gross domestic product. By referring to the latest economic calendar, you will be able to match that with the prediction indicators at hand.
Keep your eyes AND your ears open, because anything happening at any given moment can effect the market in one direction or the other.