How to predict exchange rate fluctuations
In order to correctly forecast future fluctuations in currency exchange rates, it is critical to keep abreast of political events, to monitor economic indicators, and to keep a ‘track record’ of previous changes in currency exchange rates. You will be able to significantly reduce your losses and increase your gains if you carefully analyze the current status of your Forex account and prepare detailed action plans to follow if exchange rates fluctuate dramatically.
It is postulated that price fluctuations in the securities, commodity, and currency markets are impossible to predict. Not surprisingly, very few people adhere to this view. The average member of society who watches the news on TV could not but notice that, over the past several years, starting from 2001, the state of the US economy has deteriorated significantly. Since then, the exchange rate of the euro against the US dollar has increased from approximately 85 cents per euro to 1 dollar 37 cents per euro (as of end 2004). Meanwhile, market pundits and active market participants constantly monitor a far greater number of economic indicators, which are calculated to gauge the health of the world’s leading economies. This means they are better informed about current events, which helps them respond more quickly and accurately to fluctuations in exchange rates and, therefore, earn hefty gains. As a rule, forecasts, based on the careful analysis of economic parameters, underlying indicators, and news flows, lay the groundwork for the so-called fundamental analysis.
Fundamental analysis is a valuation method used to forecast future fluctuations of exchange rates, estimated on the basis of economic parameters, underlying indicators, and news flows.
Additionally, certain patterns in price movements have been detected through trial-and-error and consistent analysis of price charts. Some of these patterns were discovered and described hundreds of years ago. Moreover, today theoretical foundations have been identified for these patterns. Forecasts, issued on the basis of price charts, analyzed with the help of technical indicators, are collectively called technical analysis.
Technical analysis is a valuation method, based on the analysis of price charts with the use of technical indicators and linear instruments.
After making his/her forecasts, a market participant needs to assess the current status of his/her Forex account, a possible number of open positions, as well as to develop an action plan if the market reverses against him/her. Then he/she opens all or a part of the trading positions, continuously monitors the current status of his/her account, and makes a decision either to close positions or to open additional positions. Strictly speaking, this process called Money Management is not a forecasting technique, but it does help ramp up gains and reduce possible losses.
Trading financial instruments involves substantial risk of loss to your capital. The high degree of leverage available in the Forex market can work against you as well as for you. Before starting Forex trading, it is critical that you carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you can sustain a substantial loss of some or all of your investments due to unfavourable fluctuations in currency exchange rates. You should abstain from Forex trading unless you are an experienced market participant or you fully understand the basics of currency markets, inherent risks, mechanisms of transaction execution and order placement. You are strongly recommended not to invest money that you cannot afford to lose. Before signing up for a Forex account, you must read and accept the terms and conditions of Forex trading, agreements, and tariffs. In order to reduce the risk of potential losses, you can (but are not obliged to) use pending stop-loss orders and, at each transaction invest not more than 5% of your Forex account. BCS-Cyprus shall not be held liable for incorrect interpretation of information posted on this website, as well as for possible mistakes, typos, and incorrect information.