My experiences moving into FX from Equities

[Stargunner]

So, I'm just going to share a few things I've thought about my move into FX, and I'd like to see what people think.

You can still call me a newbie when it comes to trading. I started in January this year. After quite a bit of drawdown I recovered my losses using trend trading, with Alexander Elder style strategies. Before this, I really didn't have a clue what I was doing. My chart timeframes are 1 week and 1 day. I've had up and down times on my SB accounts and have tried various instruments. Until recently I focussed on FTSE350/S&P500 stocks and a few global indices. and have slowly increased my account size after recouping my initial losses.

I started to get a bit tired of equities however, mainly because of where the US market is right now (tulips), and sentiment sends things off in ridiculous ways that can't always be accurately predicted technically or fundamentally, which then throws off all the equities around the world. Even wider or tighter stops don't seem to help a lot of the time.

I started to look at the things that drive the fixed income/FX markets. Not commodities, purely because I don't really understand metals, energies or agri's. I was wary though with FX, I've heard all the stories about being it being a suckers game.

Fundamentally speaking, it seems that developed market currencies, and their treasuries however seem to be based on really understandable, and accessible information. Predominantly, you're looking at interest rates, then perhaps things like risk-on/risk-off, and inflation. There is obviously huge amounts of economic data to look at, but the high impact news and data is all that affects me on my timeframe.

Technically speaking, FX trends seem obvious on a chart, and play out for long periods of time. I identify trends then enter on a pullback. I look at monthly S/R levels, slow stoch, and MACD to make trading decisions and then enter based upon intraday movements (15m chart to find ranges and price action points). I risk only 2% of my account at a time, looking at a risk reward of AT LEAST 1:2, though often quite a lot higher, this is because I sometimes take more than one entry before getting into a good trend.

I feel you need to really look at both fundamentals and technicals in FX, unless you're square on any top tier news, which just wouldn't work for me on 1 day time frames. I'd never try to guess the NFP number, but just know the rough direction of the economy in my pairs. E.g. EUR is heading to QE perhaps by Jan, because Draghi cannot just talk the Euro forever. USD is heading towards rate rises mid next year and has seen good figures. But equities are already seriously overpriced. Dollar bulls still have some opportunities in the market for now I think and risk-on is broadly still moving on ahead.

I feel the reputation FX gets from those who use other instruments is unjusitified. I'm still new to it and maybe I'm just more experienced that I was before, but I've seen better profits than I did in equities, and felt I understood better why the market moved in my favour or against it. Does FX just get this reputation because people overleverage and trade the news? Stops need to be generous but logical in FX, and I've found sometimes you'll get stopped out, but really should try again in the same direction, in order to capture a high momentum move in your favour.

I trade EUR/USD, GBP/USD, EUR/GBP, CHF/USD, USD/JPY, EUR/JPY and often enter on multiple pairs to express a view. So as a dollar bull I sell CHF, JPY and EUR at the moment, but might occasionally buy GBP against USD to hedge exposure off at certain times, and when I feel the technicals suggest the relative pricing of pairs isn't quite right. GBP is a currency I'm very neutral on right now trend wise.

Am I being an idiot? Am I trying to explain what was good luck, as personal skill? Is anything I've said wildly incorrect? I'm sharing, but really also trying to learn from my dive into FX the last few months. It's coming up to my 1st anniversary as a retail trader, and my account is in a profit, around a similar level to the returns of the S&P, maybe a little lower. So at least I've not blown out yet!

 

[tomorton]

Good points Stargunner. I am also recently into FX and find the charts print good trend indications on a reliable basis. FX is less twitchy on general market news/noise though the point you make about people trying to trade news like NFP is good - they're just being too gung-ho.

The pairs can be traded in opposing directions, trends tend to persist quite reliably, TA itself appears more dependable than in the equities world. I am trend-following, entering on pull-backs, either long or short, but only at EOD (London), with weekly charts giving me targets and dailies for entry days and stop levels. And so far, so good.

There is no excitement in trend-following, and not often room for opposing opinions, so nobody talks about it. Suits me.

 

[Wicked_Daddy]

Love this post and describes my story as well. I have traded equity options for years and make a living at it. I'm not rich but my wife and I have a comfortable home, decent cars, a growing nest egg and neither of us are concerned about being laid-off. Still, options are stressful due to the constant race against time decay. I started looking at Forex as an alternative. I have been able to apply much of my trading method to Forex and I enjoy the fact that I'm not playing "beat the clock" in addition to timing the market.

I'm still learning the basics and nuances of Forex... leverage is new to me because options use cash, no margin - so my risk is/was always a fixed amount. But to your point, the Forex market moves with a greater fluidity and I don't feel at the mercy of some analyst who dumps my stock on a moment's notice and kills my trade. News that drives Forex is scheduled for the most part and I've also noticed that any unscheduled news that does move the market seems to do so with at least a few minutes lag time - so I can react of necessary.

Idiots? The only idiots are those that approach this business with no plan, no strategy and no discipline, thinking they'll get rich. I don't care to strike it rich doing this. I just want enough to live free and control my own destiny.

Good luck to us all.

 

[Stargunner]

Thanks for the input so far guys.

I've found the trick with leverage is to make sure your stop loss is either 1% or 2% of your account size. I use 1% for intraday moves or 2% for overnight positions.

You say trend trading is boring, but calling bottoms feels depressing because you often have to spend a fair amount of time underwater! I like watching the momentum throw me into profit, and seeing how far I can ride that wave before taking profits. If I made a bad call on momentum and I start falling into loss, or its literally moving nowhere/range bound, I close the position.

My fundamentals are about interest rates. Where are they going? How much central bank intervention is required? It just feels so much more easier than worrying about coming up with a way of determining the value of a company, which is probably so obscure that the market doesn't agree with you anyway. You can be right fundamentally, and lose a lot of money in equities.

Obviously if you like your emerging markets, it's less relevant, but that's not my area. I trade developed, non-commodity currencies.