The odds are pretty good that if you’re looking to do a bit of investing you’re going to be looking at either the foreign exchange market or the stock market. Both of these investment markets have a long and illustrious history of helping people make mountains of money with smart investments – even if those initial investments started off quite small.
Both of these investment markets also have a tremendous amount of trade volume, a tremendous amount of trade volatility, and (relatively) low barriers of entry for beginning investors. Do Forex trading strategies work for stocks just as well as they do trading foreign currency pairs? Should you have special strategies for both of these investment types and never try to confuse the two with one another?
Forex trading strategies do work within the stock market, although there are differences between the two. Moving averages are typically used across the forex and stock markets as a great indicator of trend, direction and volume. Most trading strategies will need slight refinement when using them across a different market.
Do Forex Trading Strategies Work for Stocks?
A big piece of the success puzzle in investing (whether you’re talking about the Forex world, trading stocks, investing in commodities, real estate, etc.) comes down to research, due diligence, and recognizing “what time it is” in the market.
Learning the ins and outs of doing this research and due diligence in developing the gut and instinct necessary to know what the market is reacting to – and how to predict where it’s going to be after you put in your position – takes a lot of time, energy, and effort.
All successful investors understand how much sweat equity goes into learning the Forex world and the stock market.
At the same time, with so much to learn and so much to understand a lot of folks are looking for shortcuts that help them in multiple asset classes – strategies and fundamentals that work just as well in Forex as they do in the stock market.
Do Forex trading strategies work for stocks (and vice versa), though?
They sure can!
Now, obviously, there’s usually not a 1:1 method of utilizing the same strategies in Forex and stock trading to get the same result. But the fundamental principles, the tactics for market and technical research, and learning how to read the market are all fully transferable skills.
Both of these markets demand that you fully research your positions and the market before you jump right in.
Both of these markets demand that you have a specific strategy with clearly outlined goals and analytics you rely on to determine whether or not you’re getting closer or further away from those goals.
Both of these markets (in a broad sort of sense) are better suited to investors that are willing to tolerate a bit of risk in exchange for a potentially outsized reward.
And both of these markets allow you to capitalize on the power of leverage to take a relatively small nest egg and initial investment and turn it into life changing amounts of money.
So do Forex trading strategies work for stocks? They can – and will – if you’re willing to put in the time, energy, and effort to master the fundamentals of trading both of these markets.
The Differences Between Forex Markets and Stock Markets
As we highlighted a moment ago, these markets are not clones of one another and you have to understand the subtle nuances of both if you’re going to use similar strategies when trading them.
For starters, it’s important to recognize that the Forex market is much more in tuned with investors that are particularly active.
Forex is lightning fast, filled top to bottom with global competition, and is available on an almost around-the-clock basis. Active traders that like to be right in the thick of things on a day-to-day basis have a better chance of success than those that are more passive.
The stock market, on the other hand, generally favors investors that take a longer-term approach to this market.
Equities investing in general is perfectly suited to those that like to “buy and hold” – sometimes for years – before even thinking about cashing out.
A strategy like that isn’t going to bear a lot of fruit in the Forex world.
There are other fundamental differences between the Forex markets and the stock markets around the world (particularly the actual investments that you are taking part in), but there’s enough overlap between the two that you can make similar strategies work across both.
Using Moving Averages on Forex Chats and Stock Charts
Trading a moving average can be incredibly successful in both the Forex market as well as the stock market.
Moving averages are considered “trend indicators” and can be used to signal support and resistance levels in both Forex charts and traditional stock charts.
A simple moving average (sometimes called the SMA) and the exponential moving average (EMA) are to particularly popular moving averages that investors in Forex and stocks love to utilize.
The SMA is a strategy that averages out the price of a Forex currency pair or stock across a specific stretch of time. The EMA is a strategy that weights certain prices across a similar stretch of time.
That stretch of time is usually standardized – typically a 10 day, 50 day, 100 day, or 200 day block of time. On top of that, investors sometimes use moving averages in combination with envelope, ribbon, or convergence/divergence style investment strategies to get a better idea of exactly what they are working with.
You do need to know that a moving average is a lagging indicator, though. This means that any moving average strategy should not be used as a predictive indicator. They aren’t going to tell you where the price is headed.
Instead they tell you where the price has already been and where it has the potential to move in the future.
Technical analysis like this can be hugely important to new traders in both the Forex and stock markets. When you start to see assets trading over there moving average the chances are pretty good that you’re going to see a breakout – and the same is true if the asset is trading below that moving average.
Master recognizing and analyzing this and you’ll be a better Forex and stock investor for sure!
In Conclusion – Do Forex Trading Strategies Work For Stocks?
In summary, forex trading strategies can work for stock trading, but it is important to note that there are still big differences between the two.
In Forex trading, moving averages have more of a predictive nature and can be used to signal future trends. In contrast, in stocks they are lagging indicators and should not be looked at as predictors for future price movements.
Do you trade stocks and forex? Let me know in the comments down below.