How to Become a Trader and Profit from Forex Trading

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If you want to learn how to become a trader and profit from forex trading then the first decision you need to make is how you will make your investment decisions. For example how are you going to decide whether the New Zealand dollar is likely to go up or down over the next 2 weeks? There are two methods you can use to make your decision; fundamental analysis or technical analysis.

Fundamental Analysis

Fundamental traders use the economic data of a country (such as interest rates, employment numbers, inflation, trade balance, gross domestic product, retail sales, etc) in an attempt to calculate what they believe the price of that country's currency should be. If their analysis leads them to believe the currency is currently undervalued then they will buy that currency with the expectation it will go up in value. Vice versa if they believe it is overvalued and likely to decline.

The two biggest disadvantages of using fundamental analysis when you are learning how to become a trader are information overload and time lag. Information overload can occur as trying to keep on top of all the economic data which is constantly being released for all the major economies in the world is an extremely difficult and time consuming task. Secondly it's hard to predict how long it will take for the current price to align with the price a trader believes it is worth based on their fundamental calculations. They may be waiting months or even years to be proven right or wrong.

Technical Analysis

Technical traders attempt to forecast the future price movement of a currency by studying its historical price chart and attempting to identify patterns which repeat on a regular basis. For example a technical trader may notice that when ABC pattern occurs historically there has been a 60% chance that the price will go up/down thereafter. They can then use this information to their advantage and to make a profit.

In its most simple form, the basis of technical analysis is that prices are driven by human emotions – fear, greed and hope of investors – during boom and bust cycles. These patterns have occurred all through time for as long as there have been organised markets. By understanding what drives prices and recognising the patterns that have occurred in the past, traders can recognise and profit from those same patterns in the future.

Learn how to become a trader and profit from forex trading with technical analysis

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