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Can I Trade Stocks and Forex Using the Same Strategy?

By Rob on March 31, 2017

Reading Time: 3 minutes

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. This can be because Forex opportunities become scarce. 

That happens to be something we Lazy Traders do quite often. It is possible to trade stocks and forex using a single methodology, just not any one, though.  

This is how to test if a given method works for trading stocks and forex. Also what the three important reasons why our strategy works. With proper testing and back-end work you can someday move nimbly between any other markets you want to trade.      

How to Test Your Strategy in Both Stocks & Forex

Can You Trade Stocks & Forex with the Same Strategy?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 analysis 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.

See also: Which Chart Pattern Is Your “Bread and Butter?”

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 example 1) How it performs, but also, 2) Whether it fits your desired trading style and personality. Only after a full quarter or more of profitable demo trading should you put real capital at risk in the markets.

Finally, you need to see your strategy holding up over time. This means being able to backtest using previous market conditions. That includes momentum investing bull and bear markets. This would also include trending and range bound conditions. So if you want to know if you can trade stocks with your strategy, don’t take someone else’s word for it. Try that strategy (and your ability to trade it) to the test yourself.

Consider the priorities…

How to Trade Stocks with Your Forex StrategyWhat are the most important considerations for traders wanting to trade Forex and stock? I want to make it clear that trading need not look and feel different just because you’ve switched markets. Long-term forex traders should not suddenly become intraday equity traders. Instead, everything from your strategy, to your time frame, position size, handling of risk should stay the same. So regardless of the market you’re trading, some of my foremost advice would be to prioritise the basics.

3 Ways to Trade Stocks Using Your Forex Strategy

  • Select Strongly Trending Stocks/Indices: The decision to trade stocks opens up a seemingly endless universe of trade possibilities. 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. You are aiming to buy dips in overall uptrends and sell rallies in downtrends. It is 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. This 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. In particularly as you are still getting used to its range, volume, and price action tendencies, be sure to always place a hard stop. And, even if you are not an active manager, consider using this two-bar, trailing stop methodology. This will preserve and protect early profits on any of your equity trades.

Conclusion

As with any trade you should always consider the risks first. Stocks like Forex are volatile. They are influenced by similar economic reports and by the emotions of other traders. Yet although there are similarities you should be cautious in reading too much in these. This is way using the steps we have outlined above will help you succeed!

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Rob

The Lazy Trader is a publishing brand dedicated putting the fun back into finance, presenting powerful wealth creation strategies for a better world.

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Rob

The Lazy Trader is a publishing brand dedicated putting the fun back into finance, presenting powerful wealth creation strategies for a better world.

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