So here is my story. I've been trading markets for several years now, primarily stocks. I came to forex trading roughly 6 months ago. In that time I have lost money unfortunately. I have taken myself out of the market and, because of my brokers rules, had my account closed. This isn't because I hated forex and wanted to quit, but because I will be traveling for the next two months and don't want my money stashed away in an online account. I will come back to trading, but I'm not so sure I will come back to forex.
This is partly because I have a theory that it could actually be harder to trade the currency market than stocks. Maybe harder isn't the correct word. I'll say it like this. There will never be a Berkshire Hathaway of the currency market. No currency will gain value indefinetely or as linear as stocks such as BRKA. In that idea is why I find myself questioning if I really want to continue trading forex.
My theory of forex being harder/different than stocks is based on the idea that currencies have a happy medium. The pound can not raise in value indefinetely against the yen. The Japanese government and banks would not allow it. From that I'll say that currencies are much more likely to reverse direction more often based on that premise. While stock industries can be correlated that the majority will rise with good news and fall with bad news together, they are all more or less independant of one another. When trading competing stocks such as APPL and MSFT, if they both release good news they both will rise. They do not have to be in any balance and so, when APPL rises, MSFT too can rise even though they're competing companies. APPL doesn't care if MSFT is worth $400 or $50 a share. The link between two stocks is not as direct as that between trading currencies against another. This sounds like a "well no sh!t" comment since forex inherently involves trading currencies against one another.
Proponents of forex try to sell forex by saying it's great because instead of having to scan 10,000 stocks; you only need to trade 10 currencies. Really you only need to trade 3-5 currencies since at some point you're just hedging or doubling your risk without knowing it. I see this as a problem for two reasons. The first is that while we may not have to scan 10,000 stocks, we do have to know how to trade every environment. When scanning 10,000 stocks what are you doing? You're scanning for the trading scenerio that suits you best. Having thousands of stocks to scan through it is likely you'll find at least one good play. When you only have a handful of currency pairs to trade you're stuck with what you've got. You need to understand how to trade ranging markets, trending, and all other scenerios in between. I don't find that very appealing.
The second reason I find having only a handful of currencies to be a problem is again about pairs being correlated. Even if you only trade gbp/usd; it would still be unwise to not know what is happening with the yen. Hypothetical situation - The yen raises interest rates and since gbp/jpy is one of the big carry trades, the pound falls in the majority of it's pairs. You were long gbp/usd and now you're screwed not because of news from britain or the US, but because of the japanese government. I'll then say that from simple correlations such as this that every different currency will always have a hand in your success or failure even if you only trade one pair.
To get back to one of my earlier points about currencies being in a happy medium, I'll say that because of this, one needs to read indicators differently for stocks vs. currencies. In the stock market if RSI crosses 50 from below, it is a strong sign that momentum is north. This is true with currencies, but is it as true? (My attempt at a Yogism) If I believe that currencies have a happy medium of balance, then the RSI crossing 50 from below in a currency is good, but not a great thing because the currency is more likely to reverse to balance the two currencies. There is more of a push/pull acting on a currency to keep it balanced. I'll try to put it simply by saying, I would trust an MA cross system more with stocks than I would in the currency market. I believe stocks are more inclined to trending and growth than currencies which I now believe are inclined to reverse so as to balance themselves.
I believe all of these add up to a terribly different trading environment that probably isn't well suited for the casual investor. All of that is then multiplied when you bring leverage in to the game. It is my new opinion that leverage is useless and pointless. If forex excites you because of the profit potential presented by leverage, then you're already using it incorrectly. In my opinion it is only a tool to allow you to be able to play in the market since international bank trading requires a standard; one standard lot. I view leverage now, just as I view martingale trading. To survive you have to use a very small amount of your balance to use it effectively. At that point it's not worth it or it's too dangerous. With no leverage in the stock market I feel no threat of having 100% of my account in play so long as I have diversified the balance and the trades are situations I feel confident in playing.
After all that it sounds like I've already made my decision to leave forex. I probably have. I just figured I would throw this out there for others to give their opinions on. Are my assumptions about forex correct or not?
The ultimate question is, is everyone suited to trade forex? A lot of people come to these forums looking for systems on how to trade. Perhaps some people aren't suited to trade forex though. People blow through account after account some times before finally "getting it." Since I can ask the question, 'are some people just not suited for forex,' then there have to be people that it just isn't for. Are the points I detailed above enough to say I probably won't make it in forex even if I master some of the most popular systems such as the james16 thread? I will be looking forward to the discussion before I leave for my trip. TIA. Matt
This is partly because I have a theory that it could actually be harder to trade the currency market than stocks. Maybe harder isn't the correct word. I'll say it like this. There will never be a Berkshire Hathaway of the currency market. No currency will gain value indefinetely or as linear as stocks such as BRKA. In that idea is why I find myself questioning if I really want to continue trading forex.
My theory of forex being harder/different than stocks is based on the idea that currencies have a happy medium. The pound can not raise in value indefinetely against the yen. The Japanese government and banks would not allow it. From that I'll say that currencies are much more likely to reverse direction more often based on that premise. While stock industries can be correlated that the majority will rise with good news and fall with bad news together, they are all more or less independant of one another. When trading competing stocks such as APPL and MSFT, if they both release good news they both will rise. They do not have to be in any balance and so, when APPL rises, MSFT too can rise even though they're competing companies. APPL doesn't care if MSFT is worth $400 or $50 a share. The link between two stocks is not as direct as that between trading currencies against another. This sounds like a "well no sh!t" comment since forex inherently involves trading currencies against one another.
Proponents of forex try to sell forex by saying it's great because instead of having to scan 10,000 stocks; you only need to trade 10 currencies. Really you only need to trade 3-5 currencies since at some point you're just hedging or doubling your risk without knowing it. I see this as a problem for two reasons. The first is that while we may not have to scan 10,000 stocks, we do have to know how to trade every environment. When scanning 10,000 stocks what are you doing? You're scanning for the trading scenerio that suits you best. Having thousands of stocks to scan through it is likely you'll find at least one good play. When you only have a handful of currency pairs to trade you're stuck with what you've got. You need to understand how to trade ranging markets, trending, and all other scenerios in between. I don't find that very appealing.
The second reason I find having only a handful of currencies to be a problem is again about pairs being correlated. Even if you only trade gbp/usd; it would still be unwise to not know what is happening with the yen. Hypothetical situation - The yen raises interest rates and since gbp/jpy is one of the big carry trades, the pound falls in the majority of it's pairs. You were long gbp/usd and now you're screwed not because of news from britain or the US, but because of the japanese government. I'll then say that from simple correlations such as this that every different currency will always have a hand in your success or failure even if you only trade one pair.
To get back to one of my earlier points about currencies being in a happy medium, I'll say that because of this, one needs to read indicators differently for stocks vs. currencies. In the stock market if RSI crosses 50 from below, it is a strong sign that momentum is north. This is true with currencies, but is it as true? (My attempt at a Yogism) If I believe that currencies have a happy medium of balance, then the RSI crossing 50 from below in a currency is good, but not a great thing because the currency is more likely to reverse to balance the two currencies. There is more of a push/pull acting on a currency to keep it balanced. I'll try to put it simply by saying, I would trust an MA cross system more with stocks than I would in the currency market. I believe stocks are more inclined to trending and growth than currencies which I now believe are inclined to reverse so as to balance themselves.
I believe all of these add up to a terribly different trading environment that probably isn't well suited for the casual investor. All of that is then multiplied when you bring leverage in to the game. It is my new opinion that leverage is useless and pointless. If forex excites you because of the profit potential presented by leverage, then you're already using it incorrectly. In my opinion it is only a tool to allow you to be able to play in the market since international bank trading requires a standard; one standard lot. I view leverage now, just as I view martingale trading. To survive you have to use a very small amount of your balance to use it effectively. At that point it's not worth it or it's too dangerous. With no leverage in the stock market I feel no threat of having 100% of my account in play so long as I have diversified the balance and the trades are situations I feel confident in playing.
After all that it sounds like I've already made my decision to leave forex. I probably have. I just figured I would throw this out there for others to give their opinions on. Are my assumptions about forex correct or not?
The ultimate question is, is everyone suited to trade forex? A lot of people come to these forums looking for systems on how to trade. Perhaps some people aren't suited to trade forex though. People blow through account after account some times before finally "getting it." Since I can ask the question, 'are some people just not suited for forex,' then there have to be people that it just isn't for. Are the points I detailed above enough to say I probably won't make it in forex even if I master some of the most popular systems such as the james16 thread? I will be looking forward to the discussion before I leave for my trip. TIA. Matt
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