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The Weather in Forex Trading - How Forecasting Can Help Print E-mail
When you want to make money on the forex market you need to able to predict what will be in the future and act by your prediction. You do that by checking all that has been in the past and in the present with the certain currency you are interested in. after that you try and make a clever and educated guess what will be in the future. There are two ways to do this each has its advantages.

The first way is called the Fundamental analysis. This way you take into account all that happens around the world in many aspects such as economical, politically, environmentally and more so. Analysts try and understand what this means for the currency they are checking out. The most important information are the interest rates around the world. When a country changes its prime rates this affects their own currency and the currencies of their partners. Because money tends to flow to countries that have high rates, investors tend to invest in these countries causing a chain reaction. More and more investors want to invest and buy the currency so the currency price rises. The same can happen reversely if the interest fall investors pull their money out causing the currency to fall. The change in interest rates can also cause the stock market to change and the currency with it. Many things are studied by Fundamental analysis even things like the change of a leader or seasonal changes.

The technical analyses don't study the causes for the changes of currencies but the effects of these things. By using charts and graphs from the past they try to predict what will be in the future. The idea that stands behind this is that patterns are made by psychological factors. By understanding these pattern you can recognize reoccurring patterns and act by them. These are some of the methods used in this theory Bollinger Bands, Relative Strength Index, Moving Average Covergence / Divergence (MACD), and the Elliott Wave Theory. By comparing averages of past prices with the price chart itself the analyses can find you triggers which mean signals when to buy and when to sell.

If you use the MACD system you compare a drawing of one line based on the difference between the 12 and 26 day moving averages this is compared to another line which is based on the 9 day moving average. When compared lines cross and signal to the trader it is time to do movements the trader knows if to buy or sell by the position of the line on top or underneath. There are different ways some take longer to calculate like the Elliott Wave Theory. This theory says that patterns are made historically in 8 lines. This theory is based on the people's optimism and pessimism. All this theories are based on the idea that history comes back and by recognizing the patterns that were made in the past you can tell what will happen in the future.

You will not find a forex trader that doesn't use one of these techniques fundamental or technical analyses. You will find some traders that combine them both together what matters the most is what helps them succeed.

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