HOW DO TRADERS MAKE MONEY IN THE FOREX MARKET?

Currency traders simply attempt to profit from changes in the exchange rate. Because of the tremendous leverage available to forex traders, a very small change in the exchange rate can result in a large profit or loss. Fortunes can be made or lost quickly in this market; even a move in the exchange rate that is equivalent to a few hundredths of a penny can be

magnified into a substantial gain or loss. Most traders consider themselves members of one of two major categories, technical traders and fundamental traders. Technical traders focus

on technical analysis, which is the study of charts (historic price action) and indicators, to trade forex. They believe that all of the pertinent information needed to place a trade is contained within the chart.

Fundamental traders use fundamental analysis, which we can loosely describe as the study of economics (especially interest rates) to trade the forexmarket. They believe that currencies will eventually become strongeror weaker in response to their underlying economic strength or weakness, and due to changes in interest rates and monetary policy.

Most individuals are interested in the technical aspects of currency trading and have a tendency to feel intimidated when it comes to fundamental analysis. This is probably because charts are a visual device for pattern recognition, and can be interpreted quickly with experience.

Meanwhile, economics is a subject that is usually presented in a manner that can best be described as wordy and boring. Hey, there’s a reason why economics is called “the dismal science”!

Don’t be intimidated by economics and fundamentals. Generally, the fault is not with the subject, but with the manner of presentation. While this book primarily deals with the technical strategies and techniques of forex trading, I want to encourage you to think of the technical and fundamental aspects of forex as intertwined. In other words, what you see on the chart (technical) didn’t just appear by chance—it is there for a reason (fundamental).

Unfortunately, most traders tend to look at technical and fundamental analysis as an either/or proposition, but for now I just want to encourage you to consider that they are not mutually exclusive. We’ll cover this concept in greater detail as we progress through some trading techniques.