A Comparison of FX and Stock Trading

This is a discussion on A Comparison of FX and Stock Trading within the Forex forums, part of the Markets category; All of these comments below apply predominantly to Cable. I have traded other pairs, but my Cable trading dwarfs the ...

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Old Jul 6, 2006, 5:14pm   #1
Joined Jul 2003
A Comparison of FX and Stock Trading

All of these comments below apply predominantly to Cable. I have traded other pairs, but my Cable trading dwarfs the others in terms of number of trades.

I've dedicated a substantial amount of time to learning to trade currencies. While the challenge of trading without volume provided an interesting intellectual adventure, it was also the possibility of trading the mornings while 'waiting' for the US markets to open that was an additional inducement.

FWIW here's my take on trading currencies and why I wont be any more. Feel free to challenge or address any of the points I make, but be aware, I am aware that this is my very subjective take on things.

The lack of any real end-of-day on FX (and I know that delineation is increasingly blurring on many stocks ) effectively deprives the day-trader of an effective higher timeframe in which to set the context of their trading. Doesn't matter which way you slice it, and who you 'decide' is awake and trading at what part of the 24hr clock - it's a fabrication. There isn't any real end of day. I have a sense that markets 'need' days just like traders do. They need to sleep. Or they get ragged. The FX markets can't operate much differently to the way they do, but you can see for yourself, you get far more periods of range and consolidation percentage of time wise than you do in any moderate to actively traded stock. But it isn't consolidating - it's sleeping!

Using Tick Pressure as a proxy for Volume is a delightful form of delusion that is convincing until you take a genuinely objective look at what it is you're doing with the data. I spent a lot of time (and money) in getting a bespoke tick pressure proxy on my FX screens and although the process was enjoyable, the assumption that it was a close proxy was just that - an assumption. Supply & Demand do operate in the FX markets, but the tick pressure is not necessarily an aid to deducing it. Works sometimes. Far less than it does in interpretation of stock movement.

My Risk:Reward on FX was never as good as it is on stocks. That's before even going into the trade. My risk was always known and set and my initial target equally. And I did as well (better actually) in terms of winning trades to losing trades than in stocks. But the basic structure of the markets and the way I trade seem not to offer the same degree of gearing to the R:R as with stocks.

A substantial part of the universe of information available to day-traders is in LII. There is no equivalent on FX and this diminishes a traders ability to time and judge the market when compared with stocks.

The globalisation of the FX market means it operates differently to stocks. I know that with some ECNs acting as exchanges in their own right and with the increasing restructuring of direct access trading the operation of stock transactions aren't as discrete as single exchange-based instruments, but even so, there is still a very different 'feel' to the FX markets.

Did I get to make money while learning to trade FX? Yes. In fact, purely on FX I marked up an incredible 6% increase on my total trading capital (assigned to FX trading) in just one day. That's more percentage wise than I ever have on stocks in any one day.

But that's besides the point.

It ain't as much fun.

And I get my mornings back to do other things.
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Old Jul 6, 2006, 5:21pm   #2
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Hi, how long did you dedicate to learning to trade cable?
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Old Jul 6, 2006, 5:41pm   #3
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TheBramble started this thread A shade over two years.

And yes, if I can guess where you're going, I've been trading stocks for over 10.

But the issue of experience and familiarity doesn't address any of the points I made I don't think.
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Old Jul 6, 2006, 5:45pm   #4
 
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Quote:
Originally Posted by TheBramble
All of these comments below apply predominantly to Cable. I have traded other pairs, but my Cable trading dwarfs the others in terms of number of trades.

I've dedicated a substantial amount of time to learning to trade currencies. While the challenge of trading without volume provided an interesting intellectual adventure, it was also the possibility of trading the mornings while 'waiting' for the US markets to open that was an additional inducement.

FWIW here's my take on trading currencies and why I wont be any more. Feel free to challenge or address any of the points I make, but be aware, I am aware that this is my very subjective take on things.

The lack of any real end-of-day on FX (and I know that delineation is increasingly blurring on many stocks ) effectively deprives the day-trader of an effective higher timeframe in which to set the context of their trading. Doesn't matter which way you slice it, and who you 'decide' is awake and trading at what part of the 24hr clock - it's a fabrication. There isn't any real end of day. I have a sense that markets 'need' days just like traders do. They need to sleep. Or they get ragged. The FX markets can't operate much differently to the way they do, but you can see for yourself, you get far more periods of range and consolidation percentage of time wise than you do in any moderate to actively traded stock. But it isn't consolidating - it's sleeping!

Using Tick Pressure as a proxy for Volume is a delightful form of delusion that is convincing until you take a genuinely objective look at what it is you're doing with the data. I spent a lot of time (and money) in getting a bespoke tick pressure proxy on my FX screens and although the process was enjoyable, the assumption that it was a close proxy was just that - an assumption. Supply & Demand do operate in the FX markets, but the tick pressure is not necessarily an aid to deducing it. Works sometimes. Far less than it does in interpretation of stock movement.

My Risk:Reward on FX was never as good as it is on stocks. That's before even going into the trade. My risk was always known and set and my initial target equally. And I did as well (better actually) in terms of winning trades to losing trades than in stocks. But the basic structure of the markets and the way I trade seem not to offer the same degree of gearing to the R:R as with stocks.

A substantial part of the universe of information available to day-traders is in LII. There is no equivalent on FX and this diminishes a traders ability to time and judge the market when compared with stocks.

The globalisation of the FX market means it operates differently to stocks. I know that with some ECNs acting as exchanges in their own right and with the increasing restructuring of direct access trading the operation of stock transactions aren't as discrete as single exchange-based instruments, but even so, there is still a very different 'feel' to the FX markets.

Did I get to make money while learning to trade FX? Yes. In fact, purely on FX I marked up an incredible 6% increase on my total trading capital (assigned to FX trading) in just one day. That's more percentage wise than I ever have on stocks in any one day.

But that's besides the point.

It ain't as much fun.

And I get my mornings back to do other things.
Five good reasons for not trading currency in the morning..
1. You have to get up early.
2. If you have a bad morning's trading then it can taint the rest of the day.
3. As you say there is a lot of waiting for this and that to happen..
4. Futures and equities are much more fun...
5. Mornings are ideal for sailing and golf..
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Old Jul 6, 2006, 5:48pm   #5
 
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Is the possible profitability of trading the US markets larger than trading currencies? Assuming the same risk and size management?
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Old Jul 6, 2006, 6:07pm   #6
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Originally Posted by wasp
Is the possible profitability of trading the US markets larger than trading currencies? Assuming the same risk and size management?
That's the thing. It isn't for me - the way I trade.

My risk on stocks is very small or I wouldn't be taking the trade. It's part of the setup criteria. And with low risk, the position size can be correspondingly higher.

I did highlight in my first post that I appreciated I was making a very subjective set of statements and there are most likely loads of traders with far greater trading assets than I have at my disposal making absolute bucket-loads trading FX.

But my personal experience is that I am more profitable (R:R) trading stocks than FX.

I could also say I'm more profitable trading US stocks than UK stocks given the higher volatility generally of most US stocks compared with UK stocks.
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Old Jul 6, 2006, 6:21pm   #7
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TheBramble started this thread
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Originally Posted by rols
Mornings are ideal for sailing and golf..
You must lose a lot of balls.
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Old Jul 6, 2006, 7:07pm   #8
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you say you make more on a r:r basis with stocks. how about net?
could this smaller r:r ratio be because of the tricks bucket shops play?

as a stock trader, i guess you trade a load of different stocks according to what is happening (assumption), yet you seem to have stuck to only one fx pair - seems odd. why was this or have i misunderstood?

on the volume thing, why didn't you trade futures?

but if your happy and you know it (with stocks), clap your hands
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