The Forex market is very simple actually.
There is no need to study any engineer degree to be able to buy and sell a couple of currencies and wait to see if the pair moves in our desired direction.
The trading is similar to the one we can do in other assets with which we can do investing or trading of some sort, although Forex has some advantages and disadvantages when compared to other markets.
If you notice, there will be always two assets involved in each trade: whether it is the Dow Jones in respect to the dollar or if it is the euro.
There is always a base asset.
Then doing Forex trading is the same thing as doing trading somewhere else.
Either you sell or you buy.
If we have done things properly we should be able to win more times than we lose.
However, reality is quite different since that “doing things properly” does not mean we are going to win in the long-term.
The Forex market is actually quite complex.
Just imagine you buy 100,000 EURUSD at 1.0915 and one hour later you sell at 1.0960.
At the beginning you had 109,150 dollars and later 109,600, with which you would have had a win of 450 dollars in short while.
It is not bad, is it?
Especially if you find it with a leverage of, for instance, 50:1, which means that you bought the 100,000 EURUSD with 2,000 in your account?
As you see you have won 450 dollars out of 2,000, which is 22.5% return.
Well, it seems that there are real chances of making serious money with Forex.
Then if you are able to master this market you could be making lots of money supposedly.
Well, do not go so fast, because winning money in the Forex market is not easy after all, neither you will be able to be able to win using leverage easily as it is a double edged weapon.
The first thing you need to know is how the price in Forex is formed.
You have two currencies: the base and the quote.
In the EURUSD the base would be the euro and the quote the dollar.
If we look at the last example we would be having our profits in the quote currency, the dollar.
Therefore, if you would have an account in euros you would need to do the conversion so that the profit and loss are quoted in that currency.
How to make money in Forex in the short term
When do you think a currency is overvalued or undervalued with respect to other?
I do not think you can say one currency is overvalued against other or vice versa if you are doing day trading.
This is so because the daily movements are normally very small and not significant from a fundamental point of view.
I can, for example, think that the dollar is expensive in terms of Swiss francs but it is a long-term thought, not something I think it might correct the next 20 minutes.
The base of that thought is intellectual and requires a more deep analysis of the markets, so to speak.
If the USDCHF goes from 0.9901 to 0.9950 in the short-term is not a big deal. The next day may fall again to 0.9901.
This is better seen if we use the long-term charts and see the major trends.
The vast majority of things that occur during those big trends during years is nothing more than noise.
Thinking that the USDCHF may fall or rise a bit during a period of 40 minutes in a day is related to “noise” and therefore the macro economical analysis of the markets is useless there. The only thing you can “rely” on there is Technical analysis.
Learning technical analysis is not difficult really, since there are thousands of books that talk about it.
The majority of them you can be sure are useless, especially in the short-term. Another matter is the long-term, where those indicators start making more sense.
In the short-term you should do very well to find a good indicator that permits you succeed in the markets to the point to be able to make a living, what most people who try these markets want to do.
We have to admit the truth.
If not, why would people try to trade the markets?
Well, ending up doing short-term trading based in technical analysis is almost unavoidable for the majority.
After all, we know we are not going to be rich if we try to make a 30% in 4 yours with a major fall of the euro against the yen, for instance.
In the medium and long-term we can have some good trades but nothing that makes us rich suddenly really.
Therefore the majority of traders will end up trying the short-term markets.
Some people will study the markets themselves, others will look for so-called experts to show them the path with mentoring, trading signals, systems, etcetera.
Well, I can tell you here that the vast majority of those things will not make you rich, for the same reason that those things exist in order to make a living from the money the traders (their customers) give them.
To say it in other way, it will be easier for you to make money from setting up one business like that than trading the markets.
This is, guys, the best way to make money in the Forex market.
If you really want to succeed in the intraday markets of Forex you will have to show extreme amounts of talent, to say the least.
As I said at the beginning of the article, the Forex market is quite simple, what is not simple is to make money trading there.