As a trader, your financial success boils down to how well you do at forecasting price movement.
So, you need to make sure you understand how price movement works in the Forex market in order to win consistently in trading.
My name is Tyson Clayton, Senior Currency Strategist for Market Traders Institute. I’m a master Forex instructor with over 20 years of experience teaching student traders how to take ultimate control over not just their finances, but their lives.
Here are three of the most effective tools that I use to forecast prices.
1) Technical Analysis
One of my favorite price indicators is the Simple Moving Average (SMA). The SMA gives me a solid idea of what direction the price is headed. For example, if the EURO dollar is above its 200-day moving average, that means it’s above the average price over the last 200 days. The SMA will help us forecast a higher price moving forward.
Another powerful way to forecast price movement is by watching the Relative Strength Indicator (RSI). The RSI oscillates back and forth to show us whether a trade is either overbought or oversold.
2) Fundamental Analysis
Market studies reveal that short-term fundamental analysis usually does not perform as well as long-term fundamental analysis. That is why if we can combine fundamentals with technicals, together they can serve as a stronger forecasting model.
Two of the main fundamental analysis indicators I rely on are called Non-Farm Payroll (NFP) and the Producer Pricing Index (PPI). These are both inflationary gauges that can help tell us the currency exchange rate forecast, which is very important data for traders to understand.
3) Market Sentiment
Sentiment analysis involves reviewing data to gauge the public’s opinion of the market. One of the areas that I focus on when using sentiment as a forecasting tool is the futures market. The futures market has a tendency to move first, so it can offer us insight of where prices are going to move over a long period of time.
Here’s an example: If it’s December and I see that the March futures prices are higher, this tells me that prices are more likely going to move up. In other words, the market is positioning itself for a bullish move.
For more tips and strategies on successful Forex trading, visit MTI’s YouTube channel at www.youtube.com/c/Markettradersinstitute/videos.