I was watching some Long term forecasting reports in Forex which were summarized on a financial TV program and they related to the British Pound so what were the forecasts and how accurate will they turn out to be?

The most bearish bank had a figure of 1.45 and the most bullish estimate was 1.80. So how much notice should you pay to these forecasts?

Why Long Range Forecasting Doesn't Work

In my view not a lot, lets face it a lot will happen between now and the end of the year and these forecasts are based on the situation now but the global economy is always in flux and its impossible to say how much a currency will be worth 10 months in the future, based upon the fundamental supply and demand picture now.

The fundamentals will change and these reports, are no more than educated guesses and cannot be traded for profit. Long term FX trading by banks is very compelling and a lot of work goes into the reports - but don't bother paying attention to them when trading currencies.

Long Term Trend Following

This doensn't mean you can't make money trading long term trends you can and the best way to do this is to ignore the forecasts based upon fundamentals and simply use FX charts. A trend in motion is more likely to continue than reverse so try and enter trends in motion and hold them. You then need to follow them until there are clear signs of a reversal.

If you look at currency trends on charts you will see, the big trends can last for weeks months or years but when using charts you don't need to predict them, you just follow them until they reverse

Trend Following Tips

If you want to stay with long term trends, make sure you use a wide stop. When we trend follow, we tend to like to use a stop loss behind the 40 day moving average at an important support level.

You may be saying you give back a good chunk of profit doing this and you do - but keep in mind, if you caught just 50% of every major trend you would make a lot of money. You cannot predict the end of a trend, so make sure you have clear signs of reversal before you exit and this means, you place a stop which is well behind the normal market noise.

Final Words – Trade the Truth

Long term forecasting in Forex is popular with banks and brokerage houses but for traders the reports are of no real use. We would follow the price action and review sentiment and fundamentals and how they impact the market now and in the near future but the real key is to watch the chart.

When you trade the price on the chart, you are trading the truth not opinions and that's the best way to trade FX for profit.

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