Forecasting Forex – Making a Forex Forecast With a Forex Trading System

Forecasting Forex

A Forex trading system is a set of rules designed to trade Forex profitably. When all goes as planned the system tells you to buy before the market goes up and to sell before the market goes down. Some will say that a Forex trading system will "forecast" the market. Forecasting Forex

We are all familiar with forecasts, especially a weather forecast. Meteorologist study past data and take from that data patterns which appear to repeat themselves. For instance, there are certain number of weather conditions that preceded a snowfall. Meteorologists have studied these conditions and can make a forecast after they have determined that historically certain sets of conditions precede snowfall. Technical analysis is the type of research used by Forex traders to seek out those market conditions that have a high probability of recurrence. They too use historical data in the form of past Forex market prices.

Let's take a look at a simple Forex system and how it may be used to make a Forex forecast. The rules of our imaginary system are as follows:

Buy the euro dollar US dollar at noon on Monday and sell the euro dollar US dollar at noon on Friday. Forecasting Forex

Now let's assume that this system that we have outlined above was based upon research and that buying on Monday and selling for profit on Friday has been historically profitable. In this case we can see that we could comfortably "forecast" that the euro dollar US dollar will rise on a weekly basis from Monday to Friday.

Much of Forex trading is more anticipation rather than forecasting. For a Forex trading system to be successful it does not have to predict the level of the market in the future. Let's take a simple moving average system for instance. When trading using a moving average we would buy when the price level travels above the moving average and sell when the price level travels below the moving average. With this type of trading we are not so much making a forecast as taking action when certain desired conditions are met.

In making a Forex forecast fundamental analysis can quite easily come into play. Those who observe such things as levels of the gross domestic product, unemployment numbers, interest rates, etc. will sometimes make forecasts for the long-term movement of a currency pair. Although this would not be deemed as a Forex system based upon technical analysis, those skilled in fundamental analysis can profit from huge long-term moves in the Forex market. Whichever method is chosen technical or fundamental it is important that it is formulated into a system to give the trader the highest possible probability of success. Forecasting Forex

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