Strategies for forecasting foreign exchange movements

Forex analysis is divided into two categories: fundamental analysis and technical analysis. In comparison, fundamental analysis is essential forforeign exchange marketThe judgment of medium- and long-term trends is more accurate. Technical analysis focuses on graphics and indicators. To judge the future through the experience of the past, it is necessary to combine the trading information of buyers and sellers in the market. Fundamental analysis focuses on the economic aspects of the currency's home country. To predict the future strength of the currency by analyzing economic development, it is necessary to combine political factors and other macro conditions.

The difficulty of foreign exchange speculation is to distinguish whether the market is bullish, bearish or consolidated, and to overcome the human weakness of counter-market operations. To this end, it is necessary to continuously accumulate experience to increase awareness, and to study and judge the fundamental technical aspects. There is no shortcut.

Let the trend be your friend.

Under the floating exchange rate system, there are only three types of foreign exchange movements, namely, rising movements, falling movements, and consolidation movements. In the foreign exchange market, consolidation movements account for about 70% -80% of the annual trading day, and the remaining 20% -30% are long or short movements. In a consolidation situation, investors must first distinguish the consolidation range, then sell at the upper end of the range, and buy at the lower end, the so-called buy low and sell high, in order to obtain profits, and the risk should not be too large. If investors can implement a stop-loss strategy rationally, they can even increase the investment amount to obtain greater profits.

But most people in the market still want to grasp 20% -30% of the long or short market in a timely manner, and operate with the trend. The main reason is that the profit of homeopathic operations is very considerable, and the number of stops and outs is low, so the additional cost is greatly reduced. What's more, homeopathic operators are only practitioners rather than inventors. They only need to buy and sell according to existing market trends. They belong to the type of "knowing and doing is easy", so market participants think that "trend is your friend" (Trend is your friend). But in actual trading, there are two problems: one is how to distinguish whether the market is long, short or consolidated; the other is that "operating against the trend" is an extremely difficult human weakness to overcome. The overcoming of human weaknesses can usually be achieved by accumulating experience, suffering losses, and increasing cognition. As for how to distinguish whether the market is long, short, or consolidated, it must be determined by fundamental and technical aspects. Investors' operations in the foreign exchange market, whether buyers or sellers, should first predict the price of the underlying investment, and then decide the investment strategy and operation direction according to their predictions. For example, when investors are optimistic about the dollar against the yen, it means that investors believe that the dollar will go in the long market pattern, while the yen is relatively short, so they should buy the dollar and sell the yen, that is, stand in the dollar's multi-yen short side. If this prediction is correct, investors will profit.

Master the fundamentals of data analytics:

Fundamental analysts believe that the strength of a currency reflects the health of the country's economy. Although its strength may be affected by other non-economic factors and have temporary fluctuations, or produce a trend opposite to the economic constitution, in the long run, its price will eventually return to the level commensurate with the economic situation. As for how to measure the health of a country's economy, it is necessary to take a relative comparison method. For example, the economic growth rate of the United States in 1996 is estimated to reach 3%. In the eyes of fundamental analysts, this data does not determine whether the dollar should strengthen or weaken. It must be compared with the economic growth rate of the previous year and with the economic growth rates of major countries such as Germany and Japan. If the economic growth rate of the United States in the previous year was 2%, while the economic growth rate of Germany and Japan in 1996 was about 1.5%, then this 3% data provides the fundamental analyst with the idea that the US economy is getting better, its economic growth is better than that of Germany and Japan, and the dollar should be relatively strong against the mark or the yen to reflect its economic strength. Fundamental analysts use this as an indicator for foreign exchange speculation decisions, buying dollars and selling yen and marks.

Data that reflect the state of an economy, commonly referred to as economic indicators, in addition to economic growth rates, include a wide range of things, such as trade deficits, budget deficits, money supply, consumer price index (retail price index), producer price index (wholesale price index), unemployment rate, housing starts, leading indicators, etc. As the focus of fundamental analysts' bets, various data will be regularly released by relevant government departments. Investors of this type will collect and analyze various data for further analysis and comparison, as a basis for judging the trend of various trends.

Is this kind of analysis and prediction correct? How effective is it? You can look at international investors, who have extensive economic research departments responsible for analyzing the economic conditions of major countries. Before the United States and other government entities publish important economic indicators, investors in the market will first settle the foreign exchange position or reduce the foreign exchange position. The foreign exchange market presents an atmosphere of great enemy, and bank traders are waiting all night. From the public opinion after the publication of economic indicators, it can be seen that fundamental analysis does have a decisive influence in the foreign exchange market.

After the publication of economic indicators, currency movements are affected by them, and the strong may be stronger or weaker; the weak may be weaker or stronger. In the true portrayal of "economic indicators as market movers", how can foreign exchange investors ignore such an influential factor? So regardless of the accuracy of fundamental analysis in predicting the trend of currency markets, fundamental analysis has indeed become the standard for investment decisions of market participants for a long time.

Fundamental analysis is suitable for forecasting medium- and long-term trends.

It is appropriate to use fundamental analysis to predict the medium and long-term trend of currencies, such as 6 months, 1 year or 2 years. However, since the abolition of the gold standard and the internationally accepted floating exchange rate system, factors other than fundamentals will also affect currency prices to a greater or lesser extent. For example, the scale of the foreign exchange market is expanding, and the number of people participating in foreign exchange investment is increasing. The daily turnover of the international foreign exchange market has increased from 800 billion US dollars in 1994 to 1 trillion 200 billion US dollars in 1995 and 1996. 80% of the turnover, about 1 trillion US dollars, is speculative transactions. Speculators buy and sell in the international market every minute and second, and large amounts of trading will also affect the foreign exchange market.

The entire international community is increasingly open, like a global village, and the freedom of international funds to enter and exit countries is increasing. Global Payment systems such as CHIPS in the United States and CHAPS in the United Kingdom have accelerated the transfer of funds, and can even be completed in an instant. International funds are like wings, and hot money comes into being, which not only affects the monetary policies of various countries, but also often distorts the reasonable price of the currency that the fundamentals should reflect, resulting in a short-term failure of fundamental analysis. Therefore, foreign exchange investors have gradually revised the use of fundamentals. In addition to using it as a tool for medium and long-term trend forecasting, it is also matched with technical analysis data to make investment decisions.

Fundamental analysis of foreign exchange movements has been around for a long time, and the "purchasing power parity theory" mentioned in textbooks is a clear example. The basic theory of purchasing power parity holds that the price relationship of various currencies is directly related to the amount of a certain item that countries buy with the same amount of money. For example, to buy an egg, in the United States, Japan, and Germany, it costs 1 US dollar, 100 Japanese yen, and 1.5 marks each. It can be inferred that 1 US dollar, 100 yen, and 1.5 marks have the same purchasing power, so the currency price in between should be 1 US dollar equals 100 yen equals 1.5 marks. But if this theory is compared with the current foreign exchange price, it will be found that a currency is overvalued or undervalued.

In addition. The purchasing power of the currency calculated by different commodity samples also varies, whether the value of the currency is high, undervalued, and the rate of overvaluation and undervaluation will also vary. For example, according to the information provided by the economic research department of Merrill Lynch in the United States, in April 1996, compared with the purchasing power of the US dollar, the overvalued currencies were the Japanese yen, the mark, the Swiss franc, and the New Zealand dollar, with overvaluation rates of 35%, 20%, 10%, and 9%, respectively. Undervalued currencies were the British pound, the Canadian dollar, the French franc, and the Australian dollar, with undervaluation rates of 20%, 16%, 8%, and 4%, respectively.

Today's foreign exchange market has been out of the era of fixed exchange rates for a long time, so all kinds of political and economic news, as small as rumors and rumors, are enough to shock the market. It is obviously too simplistic to infer the price of a currency based on purchasing power parity alone. Investors can only use the currency price deduced by this theory as a reference.