After familiarizing ourselves with the concept of financial markets in the previous lessons, and what is the forex market? And how to trade currencies, and we highlighted the mechanism of work in the market and even the concept of the point and the method of calculating profits and losses
How do I anticipate price developments?
The importance of this question lies in the fact that it is the key to trading not just in the Forex or Forex market, but in any financial market such as the stock market, bonds, futures contracts or financial derivatives, to predict the future directions of movement the markets are the cornerstone of everyone Speculative or investment transaction that you enter into.
Supply and demand forces, market drivers
The market in the traditional sense is a seller, a buyer and a commodity, and the interaction between them is price, which is based on the driving forces of the market and what is known as supply and demand
It is the delivered quantity of a good or service that is available for actual trade
is the desire to receive the goods offered
And the relationship between supply and demand determines prices. The greater the supply of a particular good, this means a relative decrease in demand for it and, consequently, a decrease in its current price.
This means that the forces of demand are created by the buyers who make prices go up, and the forces of supply are created by the sellers who push prices down and the conflict between sellers and buyers in the market creates price movement, and if we know which of the two forces dominates the market, we expect the price direction This is where analysis comes into play
One example is the foreign exchange market
Currencies are bought and sold because of their prices or a change in their market value and based on supply and demand in the foreign exchange market or currency market, increasing demand for a currency or a lack of supply will result in one Rise in the exchange rate and vice versa, and supply forces. And the demand for currency is in turn influenced by many intertwined factors such as government monetary policy or the inflation rate, as well as political and economic conditions.
The concept of price action analysis:
To anticipate trends in market movement, you need to study the basic data – whether economic, financial, or price; The current and historical markets in order to be able to foresee their determination in the coming periods and in the financial markets in general and in the foreign exchange market in particular. There are two schools of analysis for forex and global market trends:
Fundamental or economic analysis:
In the next few lines we will get a brief overview of the concept of each and every one of them and their role in predicting the trends of market price movements
It is also known as economic analysis and is concerned with the study of the economic and political variables that affect the movement of currencies, assuming that the supply and demand for currencies are influenced by the strength or weakness of the economy.
and vice versa. In the event that economic data are negative and there are indicators of economic weakness, decline, deflation or stagnation or even political tensions arise for the country that owns the currency, all of this weakens the buyers’ demand for it, so that its supply against the Demand rises, which pushes its prices down.
Important note: you should know that due to the pair system in the forex market and trading two opposite currencies, the strength and weakness of the currency are relative, which means that you are trading by buying one strong currency against another weak one, or you trade by selling the weak currency for the strong one
The basic or economic analyst, especially in the foreign exchange market, relies on the so-called economic calendar, which is a comprehensive table of the data of indicators and major economic events that affect the currencies traded in the foreign exchange market, forex, and through which it is possible Identify the economic influences that are likely to affect the forces of supply.
Technical analysis is concerned with studying price movement through charts to anticipate future price movement trends, and technical analysis is based on the principle that the History repeats and that all the events and influences that move the market are all reflected in the price movement. Studying price movement on the chart is enough to predict prices without considering their causes.
Charts are the technical analyst’s main tool as they depict the relationship between price data and its changes over time, and technical analysis has many schools and techniques for reading charts and generating signals and trading opportunities in the forex market.