Forex Exchange: The Big Secret – How To Predict Price Movements

Article by Darrell van Zyl

It’s quite easy to make money on the forex exchange market – all you have to do is predict the way currency prices are going to move!

Is the dollar going to rise or fall today? More precisely, against which currencies? Will any currency pairs move significantly enough to allow us a profit? Are any of the major pairs forming long-term trends?

If you don’t happen to have a handy crystal ball, these questions can seem difficult to answer when you first start currency trading. Many different factors can influence currency prices, and even experienced traders occasionally make mistakes, sometimes quite costly ones. But it’s important to remember you don’t have to get it right all the time. You don’t even have to get it right most of the time (although that helps). All you need is get it right frequently enough to make an overall profit.

What you must not do is use guesswork, or your intuition, or base decisions on superficial knowledge. Just because you see a news item suggesting that the US interest rate is going to fall doesn’t mean you should rush into a trade. Find out what is likely to happen to the currency that forms the other half of the pair that interests you – maybe their rates are going to fall as well.

And of course if you have seen the news, so has everyone else and the information will already have affected the market. And what about the size of the likely fall? If it is not as dramatic as anticipated, the market could actually give a sigh of relief and move in the opposite direction.

Better to place a little more reliance on the technical analysis tools you’ll get from your broker or a charting service. One issue is that for beginners these charts may be a little overwhelming and very difficult to understand, particularly as most modern systems offer many, many charts. With so much information, it can be difficult to make sense of price movements that at first glance seem unpredictable and random.

The opposite problem arises when a beginner places too much faith in a particular indicator, say, a candlestick chart and thinks that the information is so clear that the trade cannot possibly lose.

Of course, the proper path lies somewhere between these extremes; don’t be overwhelmed by the options available, but do learn to use them because they offer much more certainty than guesses, intuition or superficial knowledge. And don’t place too much reliance on a single indicator, even if it is one that you find particularly easy to use.

When you are using charts as your crystal ball, it is smart to check your conclusions against at least one other indicator, and see whether you get agreement or divergence. If you’re using trend lines or something like a simple moving average (SMA) and see evidence of a trend forming, check that evidence against another indicator – perhaps the Relative Strength Index (RSI). Remember that in forex exchange, the trend is your friend. You can make substantial profits if you can locate a strong trend while it is still in its early stages.

Prices are rarely constant, even in the short term, and will change continually during the day. But they do often move between limits called support and resistance lines, and thus offer potential profits to traders who can correctly identify these support and resistance limits.

Sometimes the market about to retrace its steps because it is either overbought or oversold. Fibonacci systems can help you predict these reversals, and profit from them.

Even in this short article, we’ve mentioned half a dozen charting tools you might find helpful. Just remember that you can’t listen to all the news and still cover all the bases by using every single indicator you have. Find out what works for you and keep it simple, particularly when you are just starting out in forex exchange trading.

About the Author

Darrell writes for pleasure and builds websites when the markets close. If you need to organize and label a DVD or CD collection, find out how to print directly on to a disc with a “http://www.dvdlabelprinter.org/cd-dvd-label-printer.html”>CD/DVD Label Printer or aDVD Thermal printer and turn a messy heap of discs into a beautiful and organized collection.