Forex Exchange: How To Predict Price Movements
The big secret to making money on the forex exchange market is predicting the movement of currency prices. Will the dollar fall or rise today? More specifically, which currencies will it fall or rise against? Which currency pairs will show significant movement that we can profit from? Are any long term trends forming among the major pairs?
All of this can seem very complex when you first start out as a currency trader, and in one sense, it is complex. Prices are affected by many different factors and even the most experienced of traders are caught out from time to time. But remember that you do not have to get it right 100% of the time. All you have to do is get it right often enough to make a profit overall.
It is important not to start guessing, or trading according to your intuition or superficial knowledge. For example, you may see something on the news that indicates the US interest rate is about to fall. Before you place a trade on this basis, you would need to check that other nation’s interest rates are not in the same position. Also, you have to take into account the fact that this news is well known, so it will already have had an effect on the market. If the interest rate does not fall as much as expected, the market could actually react in the opposite way.
Then there are the technical analysis tools provided by your broker or a charting service. Beginners looking at these charts and indicators for the first time so not usually know what to make of them at all. They may seem overwhelming, impossible to understand. Price movements may seem completely unpredictable and random. Or, the beginner may start out with the attitude that a candlestick chart tells you all you need to know at a glance, and they cannot lose. With a little experience you will soon find that the truth is somewhere between the two.
When you are making predictions based on charts, it is always wise to check your results against at least one other indicator. You may see a trend forming on the evidence of trend lines or a simple moving average (SMA), then you can check it against another indicator such as the Relative Strength Index (RSI). Trends are your best friend in forex exchange. If you correctly identify a strong trend and get in on the early stages, you can make a lot of money.
In the short term, prices will fluctuate constantly throughout the day. They often seem to rise and fall within certain boundaries which are called support and resistance areas. By identifying overbought or oversold markets you can often tell when a price might be about to turn in its tracks. Fibonacci systems can offer very effective ways of predicting these retracements.
Whatever you do, do not try to cover all of the bases in forex trading. You cannot be checking every possible indicator and have one ear on the news as well. A simple system is best when you are starting out in forex exchange trading.
