Using Statistical Models to Predict Forex Price Movements

Statistical models are seamlessly used in multiple disciplines, including science, business, government, manufacturing, and more. It helps to find genuine and accurate conclusions from extensive data sets. Amidst its common application, statistical models are also utilized in forex trading.

It can be used in identifying future security prices while managing risks and recognizing useful trends to give you an edge in the market as a trader. Here are some statistical models that you should know in forex trading:

Note: Make sure to integrate these tools with general strategies, as you may do when investing in cryptocurrencies, to get the best outcomes.

Moving Average

When it comes to the best technical indicator of forex price movements, the moving average definitely tops the list. The moving average is rooted as per the past price action and can further be classified into simple and exponential moving averages. A simple moving average denotes the average of the forex price in a particular time period. Meanwhile, the exponential moving average has a more edge over the current price data

Moving average gives a fair idea of the forex price trends by smoothening price fluctuations. It eliminates any unnecessary noise in the market and gives accurate information regarding the trend. Depending on the upsurge and downsurge of the moving averages, you can predict the trend of the security easily. You just need to plot the single moving average on charts and notice the graph for price analysis. 

Relative Strength Index

Developed by American mechanical engineer and real estate developer J. Welles Wilder Jr, Relative Strength Index (RSI) is a well-known technical analysis tool that helps to identify any overbought/oversold conditions in the forex market. It’s a momentum oscillator that gives a fair idea about the speed of forex price fluctuations/changes

Generally, the value for RSI lies within the 0 to 100 range. A value above 70 indicates the currencies are overbought, and a value below 30 implies oversold currency. The difference between both oversold and overbought forex is that the former may have more worth than the current trading price and vice versa for the latter.   

Bollinger’s Band

Bollinger’s Band is a popular technical analysis tool developed by John Bollinger. The tool helps traders to determine the suitable time to enter/exit the forex market based on whether the currency is overbought/oversold. Usually, Bollinger’s Band is plotted as two standard deviations above/below a simple moving average of the security cost. The bands may expand or contract depending on price fluctuations.

Bollinger’s Band is an efficient indicator that shows whether the market is cheap or expensive. Besides being a volatility indicator, it also acts as a momentum oscillator for traders. 

Stochastic Oscillator/Indicator

Stochastic oscillators are technical indicators that shows whether there are going to be any changes in the direction of the asset price. It was developed by well-recognized trader George Lane in the 1950s and has been extensively followed ever since. With the help of Stochastic oscillators, traders can identify the price strength while also forecasting any price reversals. It’s an efficient way to identify when security has reached an overbought/oversold position through price momentum. 

Moving Average Convergence Divergence (MACD)

Created by Gerald Appel, Moving Average Convergence Divergence compares the two exponential moving averages to interpret the degree of divergence between them. With the help of the MACD approach, traders can identify new trends and determine when the current trends wouldn’t work. Besides momentum, MACD can be used for exhibiting the strength, direction, and duration of the security price. To calculate the MACD, traders have to find the difference between 12 EMA and 26 EMA.   

Professional Assistance

While there are several technical tools to predict forex price movements, it’s always recommended to take professional assistance before starting off with your forex trading journey. That way, you can unlock success with top Forex brokers for copy trading and expect the best outcomes for your plan. It’s also suggested to do your research and choose the top forex brokers for your trading. 

Have you tried any of the above technical indicators/statistical tools for your forex price movement prediction? If not, go ahead!