Online Forex Forecasting is the Key to Profitable Trades

Online Forex forecasting helps a trader predict price movements in the highly volatile currency market. A trader may forecast market behavior through technical analysis or through fundamental analysis. Though a growing number of traders are beginning to use a mixture of both to get the best results.

Technical analysis uses historical market action to create charts that can be used to forecast future market movements. Thus, it is strictly based on facts rather than hypothetical analysis.

One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously. It is based on the following three principles:

1. The actual price is a reflection of factors known to the market. There are therefore no surprises, because the analysis is based on actual price movements from present and the past.

2. Market behavior shows distinct patterns, thus a technical analyst looks for these patterns knowing that when the patterns repeat the results have a high probability to be the same.

3. Forex patterns reflect human psychology. Historically, they show that humans behave in the same manner and repeating them selves.

Technical analysts use five distinct theories to make online Forex forecasting. They are indicators, such as number theory (Fibonacci numbers,), Waves (Elliott wave theory), Oscillators (Relative Strength Index theory), Gaps (high-low, open-closing theory), Trends (trend walls and lines) and price movement (following the moving average theory).

Online Forex forecasting can also be done by using Fundamental analysis. Fundamental analyst will forecast future price movements, by studying economic, political, environmental and other relevant data that can impact the supply and demand of a financial instrument.

This type of analyst has to be well versed with the market as he has to strategically assess where a currency should be trading based on external factors – which are always unpredictable -- and not on the current price of a currency.

However, irrespective of the method used a great deal of data goes into making online forecasting. The developments of new software tools, and availability of historical data, have made Forex movements more precise. There is also a greater stress on analysis now as compared to the past, when many traders just traded by gut feeling.