Most traders use technical analysis to make a prediction the likely movement of stock market. For most layman, learning up technical analysis takes time and a fair amount of patience and technical interest. For most, they simply give up.
There is one other way of making advance predictions of stock market movement, and based on my observation, the correlation between the two is a pretty good one.
Take currency versus US Dollar comparison. When US Dollar gains strength against other currency, stock market will likely go down. On the contrary, the exact opposite movement (market rises) happens when US Dollar depreciates against other currency.
Take the following two examples (USD vs Ringgit and USD vs Singapore Dollar) to study the correlation:
Do you see the opposite trend being formed? It may not be the most perfect correlation but generally, it holds true.
To explain this, generally speaking it is a case of US Dollar demand is stronger during rising risk aversion (i.e., funds are risk averse to investing overseas and therefore more funds are repatriated to U.S.). On the other hand, US Dollar demand will be weakened when funds are more eager to invest overseas, thus outflow of funds from U.S.)
So if you would like to predict the day's market movement, study the currency strength versus US Dollar.
Tuesday, April 7, 2009
How To Predict Stock Market Movement Using Currency
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3 comments:
Great! I don't need my fund manager anymore! :-)
You are right, Alan! Why would you need a fund manager when you can do it yourself? Manage your own funds is much more fun!
Having said that, using the currency trend is just a simplistic view but it does work in a macro view.
Sorry for my bad english. Thank you so much for your good post. Your post helped me in my college assignment, If you can provide me more details please email me.
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