The Essence of Profiting from Exchange Rate Movements: Basic Knowledge to Ride the Market Wave

After the Corona outbreak subsided, there have been more clear statements and rhetoric such as “the yen is getting weaker,” “travel abroad is too expensive to go,” “Japan has become a cheap country,” and “foreigners who don’t follow the rules are pouring in.”

From a consumer’s perspective, the yen depreciation indeed feels like a tightening noose, a sense of stagnation. Not abrupt, but it seems things are slowly getting worse.

However, from a trader’s perspective, the view changes by 1.8 million degrees.

In the world of markets, whether the yen is weakening or strengthening is neither inherently good nor bad. It is simply an “energy wave.”

Just as a surfer waits for a good wave, a trader uses the magnitude of this “wave movement (volatility)” to generate profits. In this section, we explain why FX remains strong in both inflationary and recessionary times, the mechanism behind it, and the essential mindset to ride the waves of the market.

First of all, what is FX (foreign exchange margin trading)? There is no need to overcomplicate it. In short, it is a “giant tug-of-war between currencies around the world.”

For example, think of the currency pair “USD/JPY.” This is a state where the “dollar team” and the “yen team” are pulling on a rope.

When the dollar is strong (bought), the rope moves toward the dollar side = the chart goes up (yen weakens, dollar strengthens)

When the yen is strong (bought), the rope moves toward the yen side = the chart goes down (yen strengthens, dollar weakens)

When the news screams “yen is weakening!” it’s simply that the dollar’s strength is high and the rope is being pulled toward the dollar side. The distance that the rope moves is the source of our profits. It’s not about which side wins (good or bad); it’s about discerning which side is stronger right now and riding on the back of the stronger team. This is FX’s simplest essence.

Why do strong and weak exist? Mainly because of differences in interest rates. Of course, other factors like trade conditions, military power, and central bank interventions also play a role. From both Japan and the United States, countless ropes are pulled, and these collectively form the current USD/JPY price.

Many stock and real estate investments profit by “buying cheap and selling high.” In other words, they don’t make money unless prices rise. So when the economy isn’t doing well, activity wanes, and when the economy improves, activity picks up.

But FX is different. It has a powerful weapon that other investments do not: the ability to place orders to sell (short).

Profiting from a “yen depreciation (rise)” is easy to imagine. Buy at 100 yen per dollar, and sell when it reaches 150 yen. That yields 50 yen of profit.

So what do you do during a “yen appreciation (fall)**?” This is where FX’s unique mechanism of “selling (short)” comes in. It may be a bit hard to picture, so I’ll explain with a familiar example.

----

Imagine you borrow the latest iPhone (worth 200,000 yen) from your rich friend Suneo. He promises to return it in one month.

You immediately sell the borrowed iPhone at a secondhand shop right there, receiving 200,000 yen in cash.

A few weeks later, rumors of a newer model appear, and the iPhone’s price plunges to 150,000 yen.

You go back to the shop and buy back the same iPhone for 150,000 yen.

You return the iPhone to Suneo.

You are left with the difference of 50,000 yen, right? This is the mechanism of “selling high and buying back low (short).”

In FX, you can do this with the click of a button. In other words, even if Japan’s economy is in trouble (yen weakens), or the world slides into a recession and the yen shoots up (yen strengthens), FX traders have opportunities to profit in either scenario.

FX is called a “year-round investment” because of such advantageous characteristics.

Even if the yen is weakening, the chart does not rise in a perfectly straight line as if drawn with a ruler. It moves with waves that go up, briefly dip (correction), and rise again, repeatedly.

Many beginners lose because they see news that the yen is weakening and rush in, then get caught in a temporary downward wave (pullback) and become scared, triggering a stop loss.

Experienced traders look at the rhythm of the waves rather than the news.

They always check a long-term chart as part of multi-timeframe analysis.

Is there a big wave pointing upward now?

Within that wave, is there a temporary pullback, i.e., is it merely a dip?

If you have swum in a flowing pool, you know that swimming against the current just gets you buffeted. By catching the big current and swimming along with it, you can improve your own strength. That is the key to timing well and steadily increasing profits.

People often say, “Predicting and hitting it seems difficult.” Honestly, “no one knows how prices will move.” Even professional analysts miss forecasts a lot.

However, even if you cannot predict, you can respond.

You cannot 100% predict whether it will rain, but anyone can “put on an umbrella when it starts raining,” right? FX is the same.

Instead of betting that “the yen will weaken soon,” observe the chart, confirm that a yen-weakening wave has begun, and then ride that wave.

This approach minimizes the risk of major losses. What matters is not the ability to forecast the future, but having an objective “map” and “compass” to determine which direction the wave in front of you is heading.

That compass is chart analysis and indicators (auxiliary tools).

As long as the world economy moves, currency fluctuations (waves) will not stop. Even if today’s yen depreciation ends, tomorrow a wave of yen appreciation may begin. Or waves from the euro or pound may arrive.

In fact, FX traders love big waves. They don’t make much money from small waves. If you can position yourself at the outset of a large wave, you can capture a much larger profit margin.

“The skill of riding market waves.”

Once you acquire this skill, it becomes a near-alchemy you can use for life. Even if your salary doesn’t rise and prices go up, you can extract only the necessary profits from the market’s waves. Such a lifestyle becomes possible.

From the side that looks at news and feels “scared,” to the side that sees “opportunity” in the news,

First, try developing an interest in what kinds of big and small waves are rising in the market’s sea.

That first step will become the strongest defense that protects and increases your assets.