Forecasting forex has become a major deal in forex and this is understandably so because if forex is anything, it is forecasting. Foreign exchange is among the most tiresome things to predict as have been agreed by industry experts and analysts. The natural tendency to look before we leap has always been a strong guiding principle whenever it has to do with investing our hard earned money. The average trader wants to amass wealth trading currencies, to be able to do this effectively; he or she must be able to in a matter of speaking, have a clue of what the future holds. What effect will the current political situation have on investors’ confidence? Is the economic trend expected to continue and for how long? How are policy makers most likely to react to the present condition? The questions go on and on compounding every effort to plot a graph of the future prospects of a currency pair.
THE HURDLES BEFORE A FOREX FORECASTER
Prediction is a key component of the decisions in financial board rooms. And the natural drive of man to be in the know does not help matters. The forecaster has the job of telling the future of forex but there are some serious obstacles to this aim which may include;
- DIFFERING ECONOMIC THEORIES:
Like all areas of human endeavors, forex has it fair share of theories propounded to explain the internal workings of the market. These are naturally a welcomed aid in any field, but the issue is that with forex, these theories happen to be at a log jam. And choosing which is best or working is not as simple as their effectiveness seem to vary and between time periods. The explanation is that the factors determining forex rates can hardly be simulated as they seem to modify themselves even as our reactions to them help reshape their complexities. The experience is that investors pick and choose which to use as they deem fit and tweak it as they go.
- LACK OF COMMON INDUSTRY STANDARD:
Essentially, forex is individualistic. The main purpose of making profit places no special need for practitioners to band together. So what is observed is that traders or institutions draw from the common poll of information or data and interpret it differently. Since in the end, it your money you are investing, none should in essence tell you how to invest it. This rat race where every trader approaches the market differently with a mix of theories and trade aides leave a situation where there is no identifiable pattern of principle of operation. This makes the job of the forecaster difficult, as he cannot get corresponding evidence which converges, from the forex investors to match against the performance of trades within a time period.
Forex forecasting has many hurdles on it path but still much progress has been made in the development of many helpful tools. Yet these aides are just helpful to the serious forecaster who leverages on them to make better decisions.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.