Flexibility—i.e. whether it can be used to trade stocks, forex, futures, and other markets—is often one of the ways traders judge the overall quality of a particular trading strategy. For even if we aim to specialise in forex, it helps to be able to dabble in other markets from time to time, like when forex opportunities become scarce, for example, or when high-quality set-ups emerge elsewhere.
That happens to be something we Lazy Traders do quite often, so I can say with confidence that indeed, it is possible to trade stocks and forex using a single methodology…just not any one, though.
Now, because I’ve (obviously) not assessed every method and trading strategy out there, I’m not one to say which work for stocks and which don’t, but I can (and will gladly) help you validate a strategy for yourself. So with that, here’s how to test if a given method works for trading stocks and forex, as well as three important reasons why our strategy does. Hopefully doing the proper testing and back-end work, and choosing a strategy with characteristics that transfer well between markets will help you someday move nimbly between equities, forex, futures, and any other markets you want to trade.
How to Test Your Strategy in Both Stocks & Forex
Since you shouldn’t trade stocks, forex, or any other market without first knowing that your strategy gives you a recognisable edge, you have to put yourself and your strategy through the paces first. So for one, do you know what makes the strategy work? For example, is it based on established technical patterns, seasonal cycles, or known fundamental relationships? If so, technical and/or fundamental methods tend to work the same regardless of the market being traded, while many seasonal cycles apply only to one or two markets.
Next, can you see the strategy work for you under actual market conditions? That means demo trading the strategy in question amid current market conditions to get an idea for, 1) How it performs, but also, 2) Whether it fits your desired trading style and personality. Only when you feel comfortable trading a method, and you have a full month, or better yet, a full quarter or more of profitable demo trading under your belt should you put real capital at risk in the markets.
Finally, you need to see your strategy holding up over time, which means being able to backtest using previous market conditions. That includes bull and bear markets, trending and range bound conditions, and any or all of the markets and assets you hope to trade. So if you want to know if you can trade stocks with your strategy, don’t take someone else’s word for it; put that strategy (and your ability to trade it) to the test yourself.
3 Ways to Trade Stocks Using Your Forex Strategy
For forex traders who want to trade stocks, and whose strategies will allow it, what are the most important considerations? Well, I’d submit to you three in particular, and have listed and explained them below. First, though, I want to make it clear that trading need not look and feel different just because you’ve switched markets to now trade stocks. Long-term forex traders shouldn’t suddenly become intraday equity traders, for example. Instead, everything from your strategy, to your time frame, position size, handling of risk, and money management technique should essentially stay the same. So regardless of the market you’re trading, some of my foremost advice would be to prioritise the basics, things like…
- Select Strongly Trending Stocks/Indices: The decision to trade stocks opens up a seemingly endless universe of trade possibilities, but being selective about what shares or indices you trade may well be “Rule #1.”For simplicity starting out, look first at the charts of popular equity indices like the Dow and S&P 500, or the FTSE 100. Then only trade assets that are in clear uptrends or downtrends, aiming to buy dips in overall uptrends and sell rallies in downtrends. It’s a simple approach that works for any and every market around the world.
- Avoid News and Intraday Volatility: Stocks and stock markets are particularly susceptible to news and can gap or fluctuate wildly upon the market open. To avoid your positions being taken out by that intraday volatility, use longer-term charts like the daily or weekly, which will smooth out those temporary, emotional reactions, and trade end of day, for easier entries without the threat of news-based interference.
- Be Especially Diligent Managing Equity Trades: Stocks may behave differently than your favourite currency pair, so particularly as you’re still getting used to its range, volume, and price action tendencies, be sure to always place a hard stop. And, even if you aren’t an active manager, consider using this two-bar, trailing stop methodology, for example, to preserve and protect early profits on any of your equity trades.
And, if you really want to learn to trade stocks, forex, and equity indices, why not watch us and see how we’re doing it? Join the Lazy Trader member community for timely market analysis, technically-inspired trade ideas, and ongoing trader education. Sign up using the banner below and get the tools and support you need to successfully trade virtually any market with one clear-cut and proven strategy!
Latest posts by Rob Colville (see all)
- Trade with The Lazy Trader in 2017! - November 18, 2016
- Round the Clock Trader Live – How to Trade the News - November 8, 2016
- Why There’s Little Room for Expectations in Trading (or in Life) - October 14, 2016