DislikedI've traded forex for the past year. I trade on about $100,000 account and normally trade futures and equities.
Normally if I trade a currency I trade it through a futures contract. I decided to incorporate forex into my trading but was greatly disappointed.
There is too much volatility and the markets don't adhere to any trading theory or indicator. Forex markets don't even adhere to basic psychology that most markets adhere to.
You also can't write covered calls or puts that help to add income to your positions. It just seems like...Ignored
There are lots of (maybe obvious) reasons why equity price charts and forex price charts should, and do, present very different patterns. For example:
- With stocks, you have the valuation, and fundamentals, of only one entity to consider, e.g. MSFT. Whereas a quoted forex ‘price’ is effectively a comparative ratio of two different national economies, e.g. EURUSD = EUR and USD.
- It’s because of this that there’s less structural bias to the forex markets. For example, ‘buying’ EURUSD is the same as ‘selling’ USDEUR. In marked contrast, stock prices seem to rise slowly, and fall quickly (supposedly fear is a bigger motivator than greed ).
- The forces that drive the forex market are more complex. One example is the need to constantly maintain triangular equilibrium, e.g. GBPJPY must always be equal to GBPUSD x USDJPY.
- Unlike the stock markets, (spot) forex is not a centralized exchange. Its market structure is much more complex. Consequently, it’s necessary to interpret volume in a forex chart differently to that presented in a stock price chart.
- Forex is a continuous 24 hour market. In marked contrast, stock charts have overnight gaps and islands, i.e. different patterns.
- Whereas stock markets attract almost exclusively participants with speculative agendas, forex includes commercials whose agendas may be largely non-speculative.
- Forex markets are impacted by scheduled news announcements, which can cause intraday spikes that can trigger your stoplosses.
- The forex markets operate around three different banking sessions, and each has its own effect on volatility. For example, the USDCAD pair is more likely to move further in the US session than during the Asian session.
- The forex market offers greater overall liquidity.
- The forex markets are manipulated (by heavyweight players) in a qualitatively different way to the stock markets.
- If I may generalize, forex tends to revert to a mean more often. One possible reason for longer term mean reversion is central bank intervention to restore the balance between disparate national economies. A good example was the intervention of the SNB back in August.
No doubt there are many other reasons that I’m unaware of.
Again, if I may generalize, forex is a faster moving market, especially intraday. Indicators like RSI and MACD that were designed to provide good signals for timing entries (and exits) when trading stocks do not necessarily work as well with forex. IMO, the forex markets work more heavily around a support/resistance model. Build a robust system around rejection of key S/R levels, and/or 'orderflow' patterns, and you can make extremely accurate entries that allow for high RR trades. There are forex traders who claim to be averaging in the ballpark of 10% ROE per week, and I have seen enough to satisfy myself that such returns are possible. However, if you want to undertake a career in forex, be prepared for a steep learning curve. Take heart, then, your observation that forex is a more difficult nut to crack is most likely very accurate.
Compliments of the season to you,
David