How to Predict the Forex Market? Here’s Everything to Consider

Are you a novice to the Forex market? Then, you must be confused about how the market moves and how you can predict its next move. This article explores the factors that influence the market and how you can predict it. Keep reading below to find out more! 

Predicting the Forex market, or any market in general, is no easy task. But it’s also not impossible. 

The Forex market is huge these days. In fact, it is the world’s biggest financial market in the world. In 2019, it had a daily turnover of over $6.6 trillion dollars. That’s a significant increase from $5.1 trillion back in 2016. One of the reasons it’s so big is that it is the only market in the world that operates 24 hours a day, five days a week. Another reason is the fact that it includes 170 different currencies from around the world. 

This all sounds intimidating for a novice. We get it! 

Yet, what’s probably even more intimidating is the fact that you believe that you can never predict what’s the next move of the market. Well, the future is difficult to predict when it comes to such a big market, primarily as so many factors influence it. However, there are some strategies and tools to get an idea of what will happen next, including understanding what affects the market and its prices to change.  Keep reading below to find out more!

What Does It Mean To Predict The Forex Market? 

The first thing you need to understand about the Forex market, which is relevant to predicting its moves, is that there are two essential drivers in it: supply and demand. Both terms refer to the supply and demand of currencies. 

However, things get complicated as other factors also influence these two drivers. These factors can represent anything from the news, data, and other events that happen around the world. 

Let’s break down all these factors and how they influence the market.  

Factors That Influence the Forex Market

The first step into predicting the Forex market wisely is to understand precisely what impacts it and in what way. There are several factors that can tell a trader what will happen to a currency’s rate of exchange and what other traders may be tempted to do. More precisely, these factors include: 

Economic factors 

Economic factors basically refer to the economic growth of a country that has a currency that is widely used in the Forex market by traders. 

When that country’s economy grows, this leads to a series of events such as the increased possibility for central banks to raise the interest rates and increased participation among investors, leading to an increased demand for that particular currency. As a result of all these events, the currency’s exchange rate increases as well. 

Geo-politics

Politics, particularly political crises within a country, can also affect how the exchange rate of the country’s currency moves. Any disturbance in the political environment of a nation can influence the direction of a currency in terms of the exchange rate. This means that exchange rates can either increase or drop. 

Interest rates

A currency’s value sees an increase at the same time as an increase in interest rates. This is known on financial markets as “capital appreciation.” Obviously, this is excellent news for those investors who have invested in that particular currency because it provides them the opportunity to make greater profits. 

Since these investors have purchased the currency for a lower price, selling it for a higher price equals profit. 

Trade and capital flows 

Another factor influencing how a currency will behave on the Forex market is whether or not the coin is dependent on the country’s capital or trade flow. The capital trade is the amount of investment the country gets from sources from abroad. The trade flow represents the income the country receives from trade. Some countries can be very dependent on capital flow, and others can be dependent on trade flows. Analyze the country of which currency you plan to trade or trade most to determine what can affect the currency’s value. 

Strategies to Predict What the Next Move Will Be 

Accurate predictions of what will happen next with a currency on the Forex market can be difficult, particularly for novice traders who don’t have enough experience. However, it isn’t impossible to guess how the currency’s value will be affected by one or more of the factors discussed above. 

Here are a few strategies used by experienced traders to predict the Forex market: 

Stay informed 

One of the best ways to know what will happen next on the market is to know what is going on in the world, particularly in the country of which currency you trade most. However, you also need to pay attention to global events that may affect that country’s political or economic stability. 

So, one good strategy is to stay up to date with world news. If you’re an avid smartphone user, you can use various news apps to get notifications on your phone as soon as something important happens around the globe. 

Use technical analysis 

Technical analysis is a bit more complex and may seem intimidating when you are a novice. But, don’t worry because brokers offer many tools to help you make accurate predictions, such as the candlestick patterns used for market analysis. This tool, for example, helps you analyze the price activity of buyers and sellers on charts using shapes like candlesticks. 

These tools used for technical analysis use past market data, especially price records, to offer some predictions based on the main idea that history repeats itself. 

Use fundamental analysis 

Fundamental analysis is another strategy you can use to predict what’s going to happen next with a currency’s value and market demand. To use this strategy, you need to pay attention to certain factors like GDP, inflation, economic growth, and even manufacturing. This will help you determine the financial strength of the country of which currency you’re trading.