How to Make Money in Forex Line Trading

In 2016, an opportunity to make a killing trading the British pound short was created when the conservatives in British Parliament announced a Brexit vote. This was in order to stave off challenges from the right with the rise of the UK Independence Party. Even though the polls showed a good likelihood of Brexit winning, most pundits and experts thought the vote would surely favor the European Union. Once the vote to leave the EU was done, the British pound took a nosedive of epic proportions. Currency traders who had the foresight to short the pound made a fortune. Although Brexit doesn’t happen every day, there is money to be made in forex trading through patterns and various other forms of technical analysis.

The first order of business in trying to make money in forex line trading is to understand how forex trading works, how currency pairs work, and how to bet on currencies. If you are going long, the goal is to sell the currency pair at the highest exchange rate possible and then close the position before the exchange rate drops below the original value. Likewise, when you go short, you are closing the short position at a lower exchange rate than where you sold it, which will earn you a profit. Trend lines help to determine what has been happening in forex price action, and where the market might be headed.

Forex line trading is a type of trading that revolves around predicting future movements of price action as it relates to currency pairs. “Forex trading involves exposure to the currency market, which is volatile due to geopolitical investments, economic data releases, and interest rates. One must manage risk and utilize effective risk management strategies,” says Raymond Quisumbing, a certified financial planner.

The trading strategy takes advantage of trend lines and patterns that might form, indicating the currency pair’s direction. Forex line trading is done with various other forms of technical analysis so that traders are able to profit from trades.

When dealing with forex, most traders look for currency pairings. Currency pairings are the relative value of one currency unit vs. a different currency unit. For instance, the United States dollar has a different value vs. the British pound, the Japanese yen, and the Euro. You need to understand two currency types when trading currency pairs.

The currency that will be going up or down vs. the value of the other currency. This is the first currency in the pairing, i.e., with USD vs. GBP, USD is the base currency.

Major pairs involve major world currencies like the USD, EUR, and GBP. Minor pairs don’t include the USD. Exotic pairs involve one major currency and one from a developing economy.

The quote currency is the currency that the base currency is pegged against. This is the second currency in the paring, i.e., with USD vs. GBP; GBP is the quote currency.

Line trading is the strategy of trading based on trend lines and patterns. You might have read our series of articles on trading patterns to understand how certain patterns break out. However, behind those patterns are the following trend lines.

When the base currency’s price is increasing against the quote currency, this is a trend line with an upward trajectory. An uptrend usually indicates a bullish trading bias unless part of another more complex pattern indicates a bearish turn.

When the base currency prices are against the quote currency, this is a trend line with a downward trajectory. A downtrend usually indicates a bearish trading bias unless it’s part of another more complex pattern that indicates a bullish turn.

A sideways line means that there is no price action in general, either one way or another. In most cases, this is what is called “consolidation,” in which traders who are betting on either side of the currency close their positions and consolidate. A sideways trend line during consolidation usually indicates that a breakout will occur either way at some point.

Develop a time period you want to investigate for a trend; it could be an hour, five hours, 10 hours, a day, a month, or several months.

Draw a line connecting the points, and make sure to include the highest highs and lowest lows. This will enable you to dictate a trend.

This is pretty simple to see. If the trend is up, then it’s an uptrend. If the trend is down, then it’s a downtrend.

Choose a reputable forex broker and set up a trading account. Familiarize yourself with the trading platform, especially the price chart.

Support line: A horizontal line drawn under price lows. It represents a level where buying interest surpasses selling pressure, preventing the price from falling below.

Resistance line: A horizontal line drawn over price highs. It indicates a level where selling interest surpasses buying pressure, preventing the price from rising above.

Now you can draw trend lines, which we covered above. Make sure that when drawing trend lines, you take note of all the points, tops, and bottoms. Even if it’s sideways but an investor desires it to go another way, make sure the data is correct. Like most trading, successful trend-line trading is dependent on excellent data and analysis.

Will the investor trade the breakout or have a different strategy? A breakout occurs when the price moves above a resistance line or below a support line. It’s a signal that the current trend might continue in the direction of the breakout. All trades, however, should be managed with various technical indicators and research analysis to make sure that they there are well-informed before delving into a trade.

Set a stop-loss order: Set a level at which your trade will automatically close if the market moves against you. It limits potential losses.

Set up a take-profit order: Set a level at which your trade will automatically close when the market moves in your favor, securing your profits.

Most traders will tell you that when starting out, never risk more than 1%-2% of your trading capital on a single trade. Even if it’s tempting, proceed with caution.

Before trading with real money, practice with a demo account to hone your skills without any financial risk. Remember, trend line trading is an art, and you can only really learn how to trade the forex market with experience, and a demo account is the perfect way. Many forex traders who do trend line trading will look to optimize their trading strategies by using a demo account over and over again.

Is crypto forex? No, cryptocurrencies are certainly not forex, not yet at least. Foreign exchange needs to be legitimized and produced by a government entity. That being said, with the rise of the digital yuan and a possible digital dollar on the horizon, this could change. Crypto certainly behaves like a foreign currency. However, as it’s pegged to the U.S. dollar, it can rise when people value it and can move up and down vs. other currencies when paired.

Crypto is notoriously risky and volatile, but forex is risky as well says, says Adam Garcia, a financial consultant and CEO of Stock Dork. “Economic indicators, geopolitical events, and central bank policies can influence (forex trading). Despite offering substantial profit opportunities, forex trading carries significant risks due to its sensitivity to global economic factors, market manipulation, and sudden policy changes by governments or central banks.”

June Jia, an investment banker at GF Securities, has dealt with crypto and forex trading firsthand. “Cryptocurrency trading generally involves lower leverage,” she says. “Although cryptocurrencies are known for their intrinsic high volatility — meaning that their prices can fluctuate widely in a short period — traders typically engage in cryptocurrency transactions without employing leverage, or if they do, the leverage ratios are considerably lower compared to those in forex trading. Forex trading tends to involve higher leverage ratios, which can amplify both gains and losses, while typically exhibiting lower price volatility than cryptocurrencies. Conversely, cryptocurrency trading is known for its high price volatility but usually involves lower or no leverage. This distinct divergence in the use of leverage is a pivotal differentiator between forex and cryptocurrency trading.”

Forex trading in a free market keeps currencies honest and puts them at fair market value. This doesn’t mean all currencies are freely traded, however — many are not. The Vietnamese dong and the Brazilian real both have exchange restrictions on them.

However, for those dealing with freely traded currencies, having a good forex strategy matters. For instance, Boska is a Dutch kitchen and cookware company founded in the late 19th century that’s widely known as the best in the globe. They provide everything from serving boards to BBQ tools to kitchen knives, which they sell online and all around the world. Boska’s products are priced in euros. However, if they are shipping a bunch of high-end custom cutting boards to Japan (yen) and a load to the United States (USD), they will need to keep an eye on foreign exchange markets.

This also holds true for investors looking to invest in real estate overseas, including those from other countries, that are buying in the United States. At least that’s according to Shaun MacDonald of Shaun MacDonald, Premier Realtor. “When a consumer purchases a US property from overseas they should expect an added level of scrutiny from the US bank. The bank is trying to better understand where this money is coming from, how the consumer made the money, and if the money actually exists in the first place. These delays can be upwards of 30 days depending on the bank, availability of the requested documents, translations, etc. This can cause buyers to miss important contract delivery dates.”

Yes, you can make money on forex with 25 cents or even a dime (although you’d have to find a platform in which you could trade those amounts). All you need is another currency to make up a currency pair and have the currency that you bet on win.

With large price movements and wild swings, they can make a considerable return, particularly if they are using leverage. Currency does not swing as much as other assets, however, and many times, the differences are negligible.

Like any form of trading, i.e., stock trading or commodities trading, it can be stressful. It’s best to go in with as much knowledge as possible.

The most famous forex trader, and certainly one of the richest is the legendary George Soros, also known as “The man that broke the bank of England.” He shorted the pound considerably with his hedge fund, betting that it was overvalued and would drop, and his prophecy came true. Some might say that it is this trade and this trade alone that made him a vaunted figure in financial circles.