Forex Trading Forecast – How Does It Work?
July 8th, 2008 Posted in FX Education
To predict future outcomes in the Forex market one needs to use one or two methods of forecasting: Technical or Fundamental.
Technical analysis is a method of evaluating currency pairs by analyzing statistics generated by market activity. Technical analysts do not attempt to measure a pair’s fundamental value but rather uses charts and other tools to identify patterns that can suggest future trends. The basic belief of Technical analysts is that the historical performance of stocks and markets are indications of future performance.
On the other hand, Fundamental analysis is a method that is considered to be the opposite of the Technical analysis.
Fundamental analysis is a method of evaluating currency pairs by attempting to measure its intrinsic value by examining related economic, financial, and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect a pair’s value. For example, they would study such factors as macroeconomic indicators, such as the overall state of the economy and industry conditions, as well as microeconomic indicators, such as the financial circumstances and the managerial capabilities of major companies and/or banks. Ultimately fundamental analysis is done in an attempt to produce a value that an investor can compare with the current price. All of this is done in hope of figuring out which position to take with a specific pair.
Consequently, a typical investor will choose one approach versus the other as the correlation between the two is very loose.
