Forex, also known as foreign exchange, is the largest market globally, where trading reaches over $5 trillion (about $15,000 per person in the US) daily, surpassing the stock markets. While big banks and corporations dominate the trading, individual traders still handle significant amounts of money daily. The driving force behind forex is the interaction of supply and demand, which is influenced by one key factor: people’s sentiment towards it. Numerous factors and global news events influence this sentiment, as the forex market operates 24/7.
Before determining which method to adopt, traders must determine their strategy, including which currencies to trade. Most traders focus on major currency pairs, while others may prefer less popular ones. The trading timeframe is also crucial. Some traders prefer closing their positions on a daily basis to avoid significant price fluctuations overnight. Others may hold positions for a few days to two weeks, while some maintain them for months or even years. Traders can either predict currency movements or react to price changes. They can utilize momentum trading to forecast long-term trends or range trading to identify support and resistance levels.
Forex forecasts: fundamental analysis versus technical analysis
To predict forex movements, traders use two types of analysis: fundamental and technical. Fundamental analysis takes external events and policies into account, affecting currency prices. On the other hand, technical analysis relies on historical price data and patterns to predict future movements.
Fundamental analysis seeks to identify currencies that may be undervalued or overvalued based on external factors, while technical analysis focuses solely on price data to understand supply and demand dynamics and recurring patterns. The core principle of technical analysis revolves around supply and demand, utilizing various tools to identify past trends and patterns in the belief that these patterns will repeat in the future.
Technical analysts rely on charts, as these patterns and trends convey market sentiment and potential shifts in sentiment. The objective is to identify these patterns before they occur, in order to take advantage of the opportunity. Technical analysis is commonly employed for short-term strategies like day trading or swing trading.
In conclusion, successful forex trading requires traders to carefully consider their approach and strategy. This includes determining the currency pairs to trade and the preferred trading timeframe. Whether opting for predicting currency movements or reacting to price changes, traders can utilize momentum trading or range trading to optimize their positions. When it comes to predicting forex movements, traders have two main analysis methods to choose from: fundamental and technical analysis. Fundamental analysis considers external events and policies that impact currency prices, while technical analysis relies on historical price data and patterns to make future predictions. By adopting a well-defined strategy and understanding the intricacies of forex analysis, traders can increase their chances of success in the dynamic world of forex trading.