The foreign exchange market, or Forex market, is by far the biggest trading market in the world, boasting a daily trade volume of over 5 trillion dollars.
That’s an incredible amount of money, so why shouldn’t some of it be yours?
If you want to be a serious trader, you need to understand how the Forex market works, and at the foundation of this market are Forex trends.
Learning how to recognize Forex trends is the best way to understand the Forex market, and more importantly, it’s the best way to use the market to make money.
So read on to learn the basics about how to keep and forecast the latest Forex trend.
Using “Fundamental Analysis” to Forecast the Lastest Forex Trend
In Forex trading, fundamental analysis is done by following macroeconomic and political events and understanding how those events will affect currency prices.
For example, prices for goods should be relatively consistent all over the world (this is known as the law of one price). That means if a high rate of inflation is expected in the Australian economy, the Austrailian Dollar should weaken relative to other currencies in order to maintain consistent price levels.
You can extend this kind of thinking to other areas of macroeconomic analysis. A growing economy will usually have a stronger currency, for example.
You should also be paying attention to what politicians are saying and what geopolitical events are happening.
An easy way to keep up with all of these indicators is to use a standard economic calendar. These calendars contain official announcements and events that might have an effect on markets.
Unfortunately, fundamental analysis can only take you so far. Currency trading happens so rapidly and on such a large scale that macroeconomic trends have a quick and precise effect on the market, leaving you with little opportunity to capitalize on an emerging trend. That’s where technical analysis comes in.
Using “Technical Analysis” to Forecast the Lastest Forex Trend
Now that you understand fundamental analysis, it’s time to get into the nitty-gritty of market analysis: technical analysis.
Technical analysis is the use of past market behavior to make predictions about future market behavior. It requires a bit more experience and patience than fundamental analysis, but the payoff is worth it.
One of the most popular technical analysis tools is Bollinger Bands. This tool allows you to better predict the highs and lows of a currency.
When a currency reaches the expected high, you sell, and when it reaches the expected low, you buy.
There are plenty of other indicators available. Each one provides its own advantages and disadvantages, but they can all be used to effectively make money on the Forex market. Learning how to use these indicators in your trading strategy is essential for mastering the Forex market.
Trend or Range?
One of the most important things to consider when forecasting is whether it’s a trend or a range. As a rule of thumb, currency pairs that include the U.S. Dollar will exhibit trends, while cross-pairs will exhibit range behavior.
Knowing the difference between trend and range is essential for any Forex trader.
Get Out There and Start Trading
You’ll never learn how to master the Forex market if you don’t get your hands dirty. If you’re ready to dive in, try one of the many courses we offer on Forex trading and go make some money!