Biggest shift you had to made in trading fx vs stocks?

Hi -

I'm curious to find out, what are some of the biggest differences in trading styles and technical setups, the t/a in charts, you've found in going from trading stocks to trading currency pairs?

I wanted to find out for those who are current/former intraday or swing stock traders, when you went to trading say EUR/USD or other pairs, what technicals and trading changes did you make?

I'm asking, because I have a lot of stock traders I'd like to train up in how to trade the forex markets, and the first step is helping them understand "what's different", eg going from open range gap/breakouts in NASDAQ/NYSE stocks, to now trading what appears to be much more rangebound, tougher currency charts.

Trading for a 1/2 point+ win in a RIMM/GOOG breakout seems much easier than trying to scrape 30-40 pips out of a choppy EUR/USD chart for example.. . but I realize a lot of folks don't have the whopping 25K it takes to meet the PDT requirements for intraday stock trades, and are trading currency pairs instead. I'm interested in finding out how I could help stock traders make the transition to currency.

I'd appreciate any insights, from those who've made a transition from day/swing trading stocks, to day/swing trading currency pairs... your thoughts?



Thanks much,

Ken

While trading a stock on a breakout is easier than a currency that is rangebound, it works both way and either scenario is likely to a happen in the stock or currency markets.

For a currency daytrader (whose market is basically 24 hours a day) trying to gauge a breakout, they need to define a particular trading center time zone to watch. For instance the opening hour in Tokyo if trading USDJPY, or the London opening hour for GBPUSD.

There are rarely gaps in currencies, the few that do happen are almost always Friday close to Monday opening (Sunday night for here in the US).

But since the markets are almost never closed it makes it easier (sometimes not a good thing if you want to get some sleep ) to keep a position on till the next day or two, with only the carry cost, if you want to capture more of the trend.

I'd say the biggest difference is the time. While day trading stocks you have a nice 8-5 job. With forex I find myself constantly waking up at odd hours of the night, wondering if it's just noise or if the fundamentals have changed when things aren't going my way. Forex takes much more concentration, and awareness, because anything could happen anytime during the week. You can't turn your computer off at 5:00 PM and know you have 15 hours to relax before you turn it back on again, because your work day is not 8 or 9 hours long, its 120 hours long.
The difference between stocks and forex to me is like the difference between playing a round of golf and ridding a galloping horse bareback. With golf and stocks, it's leasurly, everything happens relatively slowly, and if you mess up, you just go back and try again. With forex and ridding galloping horses bareback, it takes guts, things can move very quickly, and if you mess up and "fall off", it can hurt pretty bad.

Of course maybe it's just that way for me because I'm doing it all wrong. lol

stocks & forex are like marijuana & heroin

Hey thanks everyone, appreciate it. Good points about the time difference... and gaps vs rangebound trading.

Ken

Many points have been well made so far. For me, I still enjoy trading stocks but I have to admit gap up/downs are one thing I don't like on stocks. You can go to bed secure in the fact that your stock is up 10%, come back the next morning and find you're 15% in the hole, ouch! You really do seldom have that problem with forex..., but this has been discussed in a previous post already.

Forex actually opens up a whole new realm of issues.

With forex, you're investing in countries, not businesses. With businesses, their sole principle is to make a profit. As long as that is happening, the stock value generally goes up. When it doesn't, the opposite happens. Ever notice what is good for the US stock market, often turns out to be bad for the US dollar? Don't get caught up in mentalities of thinking what is good for the stock market is good the for the greenback. Stock market may not like inflationary conditions, but forex does because it can cause interest rates to go up which is good for the currency, etc.

So you can see the fundamentals change how to think about your investments. But, there are some other considerations to look at also. For instance, in stocks, you are usually long your positions. There is short trading for the savvy investor (I actually prefer short trading in stocks... but that's another story) because for the most part, the stock market goes up. However, with currencies, that's not the story. You need to realize that you can just as easily be short as well as long. Forex is a two-way street. This is an important concept to remember when scalping, day trading, etc. because you don't want to limit yourself.

Another note... If you find yourself carrying trades over for several days, you need to consider the factor of interest/swap charges. This usually isn't such a big deal on the stock market, but it is very big with forex (especially if you are using margin). When I started trading forex, at first I didn't realize how much this can effect your profits. Negative interest accumulates at greater rates than positive interest and can be quite significant. Trade short on any of the GBP/JPY, USD/JPY, AUD/JPY pairs and watch how fast you get charged interest or how large the swaps can be. Even if you manage to make positive trades with positions that charge you interest, you are still losing a fair portion of your money to that interest. Multiply it out over a month, and 1-2% of your account equity can be hit just in interest alone. It really does make a difference.

Consequently, the pairs I trade I usually only trade in interest/swap positive directions unless I specifically am looking at very short term trading with the concept of making only 20-30 pips.

Finally, find yourself a good broker that you are happy with. Many brokers seem to have shady practices and little flexibility in how you can use your money. Make sure they offer plenty of options and be careful with how they charge/give interest or swap. I started with one broker (no names) whom only allowed trading in whole lots and the way they did their swap was to adjust your entry price up down according to the swap rates. This very limited form of trading never allowed for proper R/R ratios and excessive usage of margin. Needless to say, I lost money with them in the long term. Once I got away, I started making money because I was able to apply the correct investment procedures. What a difference!

So, long entry here, but hope it is enlightening.

GirlFlyer

Thanks... great comments. That's interesting to see re interest/swap charges, especially on short fx trades - thanks very much for sharing your insights.

Agree too re brokerages, there seems to be, as with much in the trading industry, some to avoid, and the "red flags" to watch out for in dealing with them, especially re getting fills in fast moving markets, what kind of spreads you're paying up.

One thing I found useful in stock trading, was to execute trades simultaneously using 2 different brokers, and see who had the biggest slippage/worst fills. That saved me a bundle, eg comparing broker a's fills vs broker b's, for the same exact stock and entry time and share size.

Then of course dumping the worst broker, and testing the best against a new broker, eg broker "c", to see how they compared. When you multiply the difference out, over hundreds of trades, there's many thousands of dollars to be saved, by finding the fastest/lowest spread broker. By experimenting, testing, not believing the hype

Might be a similar good experiment for fx? eg trade same lot sizes using two different brokers, and see who has the poorest vs fastest fills, and spread differences.

Ken

While trading a stock on a breakout is easier than a currency that is rangebound, it works both way and either scenario is likely to a happen in the stock or currency markets as well.

For a forex currency daytrader (whose market is basically open 24 hours a day) trying to gauge a breakout, they need to define a particular trading center time zone to watch. For instance the opening hour in Tokyo if trading USD/JPY, or the London opening hour for GBP/USD.

There are rarely gaps in currencies, the few that do happen are almost always Friday close to Monday opening (Sunday night for here in the EU).

But since the markets are almost never closed it makes it easier (sometimes not a good thing if you want to get some sleep) to keep a position on till the next two or three days, with only the carry trade cost, if you want to capture more of the trend.

Forex do not behave like stocks . Pull out a forex chart and compare with stock chart and U will see the difference .

I could trade stocks if I wanted to, but I'm not sold it is easier. Ken can you give me examples as to why you think it is easier to trade stocks?

steve primo was a stock trader that made the transition from stocks to forex, he highlights some excellent simple stock methods that work equally as well in forex.... easy to back test and the figures stack up, theres some free webinars on fxstreet if anyone is interested

I don't think Ken's around anymore, he last posted in 2007. This is an old thread.

The biggest problem I had, going from Forex to Stocks, as a multi-day swing trader is not being able to feel the movement and see clear patterns because of the overnight gap. For a while I was trading ETFs which track a Futures instrument (SPY, GLD, etc.) so i could see the 24-hour movement on the Futures charts, but then decided to trade even longer-term and use the weekly Equity charts.

For day trading, though, I think stocks are much easier because generally the ATR is higher. A daily ATR in Forex shows 24 hours of movement, while the equivalent ATR in stocks occurs during 6.5 hours. It's much easier to get a 20-cent move than a 20-pip move.

lol didn't even glance at the difference in dates between the last post and vladv's post.

yeah I guess the ATR is higher, but I have no idea where to start exploiting inefficiencies in that market.

I don't understand what's meant when you and others say "exploiting inefficiencies". Do you mean 'buying oversold' and 'selling supply' and things like that? To me, trading is just simply finding a clear trend and buying dips and selling rallies.