November 8, 2011
My Experiences Of Trading Forex And Stocks Using Long Term Charts
To some extent trading the forex markets using long term charts (such as the daily and weekly charts) is a lot easier than trading the short term charts (such as the 1 and 5 minute charts). Indeed that's why my core trading system, ie my main 4 hour trading system (see right for more details), is based on the 4 hour and daily charts.
However when you are comparing long term forex trading to long term share trading, there is only one winner for me - share trading.
There is one thing you have in your favour when trading good quality stocks, and that's the fact that the share price should continue heading higher as long as the company is growing it's earnings every year (and ideally it's dividends as well).
So all you have to do is find those stocks that have shown consistent earnings growth over many years (and are likely to continue growing in future years) and buy the actual stocks or open long positions when the opportunities arise, ie when they are oversold on a technical basis or massively undervalued on a fundamental basis.
In other words whenever the share price falls with the wider market, you should view this an opportunity to scale into long positions, safe in the knowledge that you are trading a solid long term growth company and the long term trend should prevail at some stage.
When you are trading forex pairs on the other hand, you can't really get a firm idea of the underlying long term trend. For example no-one knows if the GBP/USD or EUR/USD pairs will continue heading higher or lower in the coming years.
So in effect you are trading blind to some extent. There are rare occasions when the fundamentals can give you a better idea of any possible long term trends, but unless you are a skilled economist who is prepared to look at lots of economic data from various countries, it is very hard to do.
In most cases all you have to go on are technical indicators, whereas you have technical indicators and financial forecasts and predictions to help you when trading stocks.
Finally with share trading you can afford to take a long term view if you buy the actual stock, and not panic too much if the price moves against you initially. You can sell your position or take a loss whenever you want, however with forex trading it is not so easy to take a long term view because your position may well be leveraged. Therefore you may be forced to close out positions if the price moves against you and you start to incur big losses.
Saying all that, I still believe there are decent profits to be made from long term forex trading, and I certainly don't want to put anyone off because technical analysis works really well on these long term charts. The indicators themselves are more reliable and things like fibonacci levels and lines of support and resistance take on greater significance.
However I just think long term share trading is slightly easier to make consistent profits if you only trade high quality growth stocks because you already know the long term trend. Therefore you can trade in and out of positions accordingly.
Ultimately it is up to you to decide what style of trading is best for you, and what type of instrument you want to trade. If you are like a lot of traders, you probably won't want to trade any long term charts whatsoever. However I just thought I would write this article comparing long term forex trading to long term share trading because some people prefer this more relaxed style of trading.