A Comparison of FX and Stock Trading

Jul 10, 2003
8,395
1,169
223
www.trade2win.com
#1
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.
 
Likes: Jack o'Clubs
Jul 10, 2003
8,395
1,169
223
www.trade2win.com
#3
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.
 

rols

Well-known member
Sep 10, 2004
1,621
335
93
#4
TheBramble said:
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..
 

wasp

Member
Aug 11, 2003
5,107
877
173
#5
Is the possible profitability of trading the US markets larger than trading currencies? Assuming the same risk and size management?
 
Jul 10, 2003
8,395
1,169
223
www.trade2win.com
#6
wasp said:
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.
 

charliechan

Well-known member
Jun 18, 2005
1,009
120
73
UK
#8
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 :)
 
Jul 10, 2003
8,395
1,169
223
www.trade2win.com
#9
charliechan said:
you say you make more on a r:r basis with stocks. how about net?
I always estimate Risk:Reward net.

charliechan said:
could this smaller r:r ratio be because of the tricks bucket shops play?
Oanda is hardly a bucket shop.

charliechan said:
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?
No that's right. Apart from a few trades on other pairs it was predominantly Cable. I stuck to predominantly one pair as I stuck to just a few core stocks when learning to trade stocks.

I could have gone for any of the majors, but Cable has the greatest following here on t2w and I figured it might be useful to go with the trend... :LOL:

charliechan said:
on the volume thing, why didn't you trade futures?
Yes, good point. And don't know. Did consider it at one point, but felt it would be the same as moving from stocks to an index or index to index future. Different character altogether and I was attempting to tutor myself in the underlying spot.

Bear in mind this was an exercise in education rather than an attempt to develop a bread-and-butter trading method. I already had the safety net of my stock day trading for me to enjoy the luxury of a comfortable ride. And thinking about it, maybe that was the element that was missing from the mix.
 

Priceman

Active member
Mar 11, 2006
757
84
38
#10
Tony, great thread you've started here and I really appreciate your honesty as I'm about 6-9 months into FX and not totally successfully at the moment unless I can screen watch. I am trying to work out a longer period system but with cable being schizophrenic it's just impossible.

Hope you'll pop in and out of the threads though my friend to add your words of wisdom now and then.

all the best
 
Jul 10, 2003
8,395
1,169
223
www.trade2win.com
#11
Words of Wisdom? Wow! Dunno 'bout that.

Interesting you mention timeframes. Another member I know personally to be a successful day trader is considering moving to a longer (EOD) timeframe in order to free up time to attend to other interests while still generating his daily bread from trading. And the same level of bread more to the point.

It's not Cable, or any other instrument, that's schizoid - just the participants in that market that make it seem so at times.

With FX, and Cable specifically as you mention it, there are far greater periods of nothingness (it's not consolidation - just lack of trading - I know - I've looked at my tick pressure volume proxy across these periods and there is little real activity) and it's important NOT to be trading these on an intraday basis. Unless you're using a very short-term low-volatility option setup or one of the even shorter-term exotics. If you're trading these quiet spots, on spots, intraday, you're tying up your funds in the doldrums. Pointless.

But these extended (cf stocks) periods of quiet have far less impact on you as you widen your timeframe window. Just take a look at Cable on a Daily chart. Not too much hanging around, is there? So makes sense if you're committed to Cable to look at the longer timeframes.
 

zuke

Well-known member
Jun 25, 2004
1,180
14
48
London
#12
TheBramble said:
Words of Wisdom? Wow! Dunno 'bout that.

Interesting you mention timeframes. Another member I know personally to be a successful day trader is considering moving to a longer (EOD) timeframe in order to free up time to attend to other interests while still generating his daily bread from trading. And the same level of bread more to the point.

It's not Cable, or any other instrument, that's schizoid - just the participants in that market that make it seem so at times.

With FX, and Cable specifically as you mention it, there are far greater periods of nothingness (it's not consolidation - just lack of trading - I know - I've looked at my tick pressure volume proxy across these periods and there is little real activity) and it's important NOT to be trading these on an intraday basis. Unless you're using a very short-term low-volatility option setup or one of the even shorter-term exotics. If you're trading these quiet spots, on spots, intraday, you're tying up your funds in the doldrums. Pointless.

But these extended (cf stocks) periods of quiet have far less impact on you as you widen your timeframe window. Just take a look at Cable on a Daily chart. Not too much hanging around, is there? So makes sense if you're committed to Cable to look at the longer timeframes.

I must say Im surprised you are not going to trading FX anymore. Your inout on the Live thread has been excellent and I think we have all appreciated the knowledge that you've brought.

On the time frames point, I definitwly think that the longer timeframes are better suited to Cable. However, what I think is even more important, is having the requisite strategy for a given situation. For me, I have three main strategies that Trade off the Weekly/4hr; 1hr/15min and I am currently trying a 5 min strategy (a variation on my main strategy). I have had much more success with the longer timeframes, because as you rightly say, tying up funds on the quiet days is an absolute waste.

Good luck with your future exploits mate and come back and see us on the Live thread!
 
Jul 10, 2003
8,395
1,169
223
www.trade2win.com
#13
zuke said:
I must say Im surprised you are not going to trading FX anymore. Your inout on the Live thread has been excellent and I think we have all appreciated the knowledge that you've brought.
Aw chucks.... :eek:

zuke said:
On the time frames point, I definitwly think that the longer timeframes are better suited to Cable. [...] I have had much more success with the longer timeframes, because as you rightly say, tying up funds on the quiet days is an absolute waste.
Well that's the thing. You're still tying up your funds during the quiet periods, but it's part of the method and it's below radar. Just as the activity (or lack of activity) periods on a 1min chart are outside the ken of a 5min trader. If you're trading daily (for example) your position is expected/planned to be open for a few days/weeks. You still have your money 'tied up' during all those quiet spots that occur on the lower timeframe charts, but YOUR daily charts are not impacted by this (lack of) noise.

I suspect it's all based on expectations of performance. To sit at a 5min chart and watch 2-3 hours of +/-15 pip range is not a good use of time or trading capital. But for an EOD trader, when they check their position each night/morning and note that their trade is still on target - they don't 'see' any of that slack time. They haven't invested any of their time into it. I think it's the investment of screen-time rather than funds which is the issue.