At Baxia we care for our clients and we want you to improve your trading knowledge. We would like to provide you all the valuable information about the different ways you can make a prediction to help you determine which side of the trade you want to take. Information is power and a great way to get ahead of other traders is to increase your knowledge on different topics that can help you improve your trading strategies.
To make a prediction you need to come up with a strategy that gives you the information you need to forecast exchange rates, this could be based on fundamental factors, technical indicators or chart patterns.
What Information Should I Watch to Make a Prediction About Currency Values?
Fundamental factors are part of macroeconomics, where we have economic indicators like Gross Domestic Product, Inflation, and Monetary Policies, this approach involves the wellbeing of a country’s economy, and its currency. News events like central banks interest rate decisions will affect the currency exchange rate of a specific currency in the short term, as the markets tend to react extremely fast to these changes.
In order to come up with an exchange rate prediction using this technique you would need to anticipate what the outcome could be for each decision the central bank can make, place a trade on the side you believe is going to be benefited the most and hope that your prediction is correct. This is known as news trading, it is a risky strategy that has a very aggressive approach since volatility during these events is extremely high and you can be stopped out very quickly, the risk reward ratio is high.
What most foreign exchange traders do is establish a technical analysis strategy based on indicators or chart patterns, as you may have heard before, history tends to repeat itself. By evaluating the previous prices of an asset and its behavior using indicators or drawings in your graph, you can come up with a prediction of the exchange rate for the short term or the long term depending on the timeframes you use for your analysis.
It is normally recommended to use at least 4 different indicators on your graph, do not base your decision making process in just 1 or 2 indicators as these might give you false signals, you need to always corroborate with additional indicators, you can also use chart pattern analysis to come up with a technical analysis predictions.
Open a demo account with Baxia here and try the different analysis approaches to find which suits you best and start trading.
You can also subscribe to receive Baxia Markets News for all the trending topics around trading.
We love to hear new ideas from traders and want to know what you think! If you like this topic and want to suggest future topics that you find helpful, let us know by clicking the ‘submit your feedback’ button below.
Interested in learning more about trading? Visit our Educational Center below.