The forex market is a dynamic market. It always moves and it’s sometimes very unpredictable. As a forex trader, your goal is to know what the market will do before it does it.
In other words, you should be forward-thinking. One step ahead of the game is the way to do it.
But how can you do it? In this article, we’ll share to you the best ways to predict the market through trends and analysis. If you’re a newbie trader, this article will 100% help you.
Determining the Trends
The forex market mostly moves in trends. So, as a forex trader, you should be capable of determining and following a trend when the market shows one. This can be very useful when you take a position.
Trend here refers to the general direction of the broader market or an asset’s price. Trends can have different lengths. They can be short, intermediate, or long.
Many traders trade with the trend, meaning determining whether it’s short, intermediate, or long, and then trading along with the market’s general direction.
Going with the Flow
Under the lens of general forex trading strategy, the best way to deal with trends is to follow them. Here’s an example.
If the broader market is moving up, you should be careful not to place too many trades or positions that incline of the opposite direction.
You can find trends also on interest rates, yields, and equities. As a matter of fact, you can find a trend in anything that has volume and price.
Types of Trends
There are three general types of trends that traders follow.
- If the trend is moving upwards (uptrend), then the first currency in the currency pair is appreciating, while the second currency is depreciating.
- If the trend is moving downwards (downtrend), then the first currency is depreciating while the second currency is appreciating.
- If the trend is neither uptrend or downtrend, then the currency pair is moving sideways. This means that the price is in stable condition.
2 Types of Forex Market Analysis
There are many different approaches to analyzing the markets. However, these different styles fall under two broader approaches: fundamental and technical analyses.
Fundamental analysis is an approach to the forex market that focuses on the factors within the market. If you use fundamental analysis, you typically need to pay attention to the following:
- Gross domestic product (GDP) data
- Economic growth
In other words, fundamental analysis requires you to study the economic strength of the countries behind the currencies.
The economic and geopolitical factors in focus help you understand how the currencies will move in relation to the general condition of the country.
Technical analysis is essentially trying to forecast the future price movement of the pair. With this approach, you examine past market data.
The idea is that history tends to repeat itself in predictable patterns. Forex traders that use technical analysis use a wide variety of tools as representations of market data.
These include volume charts, price charts, and indicators. They use these technical data to know when to enter and exit a trade and thus gain a profit through historical price movements.