7. How to Forecast the Market?

A forecast is probabilistic judgment of research subject’s future state.

In our case it’s required to predict future prices of certain currencies against other currencies. In turn, the quotes change due to numerous factors, which are the exact starting point for market forecasting within the frame of various analysis types.

Fundamental analysis is based on economic, social and political events that might affect a national currency’s exchange rate. For instance, effect might be caused by news concerning increase or decrease in a Central Bank’s interest rate, principal economic indicators (barrel of oil price in Russia), a country’s unemployment rate and other economic indices. It should not be forgotten that besides economic indicators fundamental factors include events in a country’s social and political life: long-lasting riots, terrorist threats, natural disasters or war conflicts can dramatically affect a country’s economy, and, thus, the national currency’s exchange rate.

Technical analysis is not concerned with reasons and events behind exchange rates fluctuations, instead it implicates that traders examine price trends in retrospective in order to forecast future movements. Important task of technical analysis is to figure out existing market trend. Regardless of the trend direction –downwards or upwards) you can achieve profit by opening trades in an existing trend direction. Technical analysis chart patterns are utilized for in-depth price chart examination. Depending on which of the known chart patterns is being formed on a chart, you can suppose further price changes.

Both analysis methods interrelate closely: the technical analysis is price movement charts examination, while the fundamental analysis is based on economic, social and political events affecting supply and demand levels of a certain currency. Fundamental factors affect the market’s mood, while the technical analysis helps us to visualize it and use for prognosis.

There is no tool in the market that allows 100% accurate forecasting, and successful traders have no mystical clairvoyance ability. At the same time, they can correctly interpret fundamental data gathered from economy-related news and remember the essential rule of technical analysis – «Trend is your friend!»