How to Make Profits in Forex

Trillions of dollars in foreign currencies change hands every day in the Forex markets. How to make profits in Forex is by anticipating where the rate of exchange of a given currency pair will go next and trading accordingly. For example, Bloomberg reports Canadian dollar declines due to job losses in Canada.

The Canadian dollar fell to a three-week low after a report showed employment unexpectedly declined in April amid cutbacks linked to the struggling energy industry and manufacturing.

The currency dropped against most major peers as Statistics Canada said employment fell by 2,100 positions in April, compared with the median forecast of a 1,000 job increase. The decline followed a gain of 40,600 in March.

A surge in crude oil helped make the Canadian dollar one of the top performers in the developed world the past few months. It’s pared its gains for that period to 7.7 percent.

What drives a nation’s economy? What is its monetary policy? What is its balance of payments? These factors drive exchange rates and understanding them is how to make profits in Forex.

The Federal Reserve and U.S. Interest Rates

The Forex news reported two weeks ago on CNBC was that the Fed holds rates over concerns of a slowing economy.

Amid a moribund economy and reduced levels of consumer spending, the Fed on Wednesday again opted not to raise interest rates.

“Economic activity appears to have slowed,” the Federal Open Market Committee said in a statement released after its two-day meeting this week. “Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high.”

The statement highlighted the many conflicting signs in the U.S. economy – consistent job growth and an improving housing market against slowdowns in business investment and exports.

When a central bank raises interest rates the value of a nation’s currency rises. Because the USA has the dominate currency on the planet Forex traders everywhere watch to see if the Fed will raise rates at their next FOMC meeting. One of the ways to make profits in Forex is to correctly anticipate whether or not the Fed will raise, or lower, rates. Factors that affect such a decision include the strength of the U.S. economy, employment rates and inflation.

Minutes by Minute Forex Profits

Many traders do not worry so much about the fundamentals that drive the market. How they make profits in Forex is by technical trading. Technical analysis of Forex currencies uses statistics to predict short term price movements. Essentially this approach takes advantage of the fact that over the very short term markets and market patterns tend to repeat themselves.

Centuries ago tulip bulb traders in Holland and rice traders in Japan recognized that some price patterns always repeated themselves. They realized that if they read the first part of the pattern they could many times predict the second part. Japanese candlestick signals originated when there were Samurai in Japan and were used in rice trading. Today this tool, as well as more modern variants, is used for technical analysis of Forex currencies as well as stocks, futures, and options. In the technical analysis of Forex currencies traders look for well-defined signals. These signals are the patterns followed by the price of one currency versus another.

How to make profits in Forex in this case is to learn how to use technical analysis software and sit at your trade station throughout the trading day taking small profits as technical analysis signals indicate. Although there are devotees of both approaches the best way to make profits in Forex is probably a mixture of the two.