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Can Forex beat stocks?

Forex is the market that looks so easy to many and that is so hard compared with the stock market. Basically it is a game of the banks. They offer you the cheap entry, well knowing that in most cases you will be the slot machine for them. As so often with daytrading the masters of the market create the illusion of chart patterns that are interpreted as indications for good entry chances. The market is huge, but there are still players who can manipulate prices in the short run. For instance, this could mean calming price fluctuations down into a range and then suddenly forcing the price to break out to one side. So many are now trying to hop onto the bandwagon, because they have spotted a chart formation that generally stands for something. Well, in Forex it often stands for a trap.

There are of course real movements, most likely caused by news. But the banks have here a home field advantage. In the first moments they trade at the better levels for themselves and let you in only when the cheap entry is over and the risk begins to outweigh the potential.

On the other hand, it could be so nice. Forex offers trading with very little capital, but scales to much bigger investments and is open 24 hours a day. Could it be that there is a loophole? Yes, whenever a market gets manipulated, there is the chance to do the opposite of what you are expected to do. For example, one could try to trade shoulder to shoulder with the sharks.

It has not necessarily to be manipulation that breaks many small traders in Forex. Instead it could be simply random that e.g. ignites a start, which then gets fueled by cyclical daytraders. Often this is the cheap entry for the bigger players waiting to execute a large order in the other direction. Or it is the entry for traders who know about this effect and bet anticylically that the price can not sustain that level.

In order to take advantage of the many meaningless price moves in Forex, you have to be able to differentiate them from the real ones. That means either beforehand or as fast as possible after the entry. Better, of course, is to be able to do it beforehand...

A working Forex system is not much different to a stock system. The best indicator for future advance is the trend. If you want to try Forex trading, you should stick to a trend system. And if you want to succeed, I suggest to concentrate on longer running ones. In that trading scenario even Forex may work.

One specific Forex system could be to use short-term fluctuations to enter cheaply into a longer running trend:

  • Wait for and detect a long running trend, and
  • enter it on a shortlived pullback that doesn't break the long trend.

Here is a convenient scanner system for such a Forex trend trading method:

The question of the beginning whether Forex beats stocks or vice versa is in my opinion simply answered by the fact that stocks can swing up a multiple of their current value, whereas in Forex something comparable can only be achieved by using a high leverage, meaning accepting a much higher risk.

Forex   Under the millstones of the banks
Futures  Hoping for the trend and finding chaos
Options   Above average? You will still lose!
Stocks   The negative-sum game for investors

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