Trading intraday with Forex robots seems to be the latest fashion of the small private trader. It could be done with stocks also. We deliberately overlook here the pattern day trading rule that makes day trading in the U.S. stock markets almost impossible with a capital of less than 25.000 dollar. This is of course one of the main reasons for the run that Forex day trading enjoyed over the last years.
So, what are the pros and cons for Forex and stock day trading? Forex has only one argument behind it, and that is the high liquidity. Trading costs are likely to be higher, because in most cases the private trader gets artificial quotes from their Forex broker. The spread has always to be paid on trading desks, but additionally, depending on the position, long or short, bid and ask prices are skewed towards one or the other direction. If news hit the wires the great stream of Forex liquidity suddenly dries out to a desert.
The main disadvantage for the Forex day trader is the lousy number of tradable currency pairs. That compares to tens of thousands of stocks globally. Vice versa that is the stock day traders advantage, as it opens the door to different trading strategies. Probably the best day trading system is to trade only where the action is. If you are a stock day trader, there is always something gapping up or down or moving strongly the whole day long. In Forex there is often no action. No action usually means small and random movements. Random means you will lose.
This leads to the next advantage of stocks. In Forex one has to use large leverage to place trades that can achieve meaningful profits at all. Stocks don’t need this dirty trick, which is otherwise known as bad money management. There are always stocks with strong runs and that are the ones the day trader should concentrate on.
It is possible to do some sort of intraday swing trading with a few selected stocks that are known for their volatility and liquidity. Have an algorithm, the black box, that switches between long and short, and follow intraday swings. Brave souls could of course do the opposite and mimic Forex scalpers with their scalping box.
But the real meat for the day trader are the stocks where the conga drums get played. The first step is to identify those, as they change on a daily basis. There is only one step left, the second one and you guessed it, it is nothing else than trend trading. Simply enter at the high, long plays are less choppy than their short counterparts, and hold the stock for the rest of the day. Is it really that easy? Yes, at least in principle.
Finally go to bed with the warm feeling of the unstoppable stream of dollars that your conga stocks drum into your pocket. Poor Forex trader has to make now his robot clear for the night session. He doesn’t hear the congas, but instead his own heart beating, fearing that his scalping robot will flush his trading capital this night down the Forex toilet.
As for a conclusion, playing the Forex martingale and its trading equivalent of letting losses run is the worst money management. This sort of trading kamikaze probably doesn’t deserve to be associated with money management at all. Trend trading with a tight stop and no use of margin is the way to go.