In this episode of Truth About FX, Walter digs into probably the one of the most asked questions in forex trading: what are the pros and cons of trading live? He talks about the positive and negative aspect of different trading types, in general, and what might be the most beneficial for you in terms of your beliefs and lifestyle.
And do you know what monkeys and bananas have one thing in common with trading and charts?
Download (Duration: 07:52 / 9.00 MB)
In This Episode:
00:42 – not the best
01:18 – training wheels
03:02 – ugly charts
05:50 – tangible
07:13 – great to start
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Here’s a question that somebody wrote in recently. What are the pros and cons of forex trading?
Walter: Well, that’s a big picture to view, isn’t it? I mean, it sounds like someone is getting into trading for the first time. In a lot of ways, I have to say it’s probably not the best place to start trading.
That might be weird to hear that but I actually think that share trading — or stock trading as they call it in different countries — I think that is easier to trade I think because most stock traders are just buying, they’re not selling. That immediately removes half the decision. That makes the decision twice as easy.
Hugh: And complications.
Walter: Yeah. And, they tend to go up like most stocks tend to go up in a rising markets when the markets are really strong, if the Dollar’s strong, the NASDAQ or whatever — the Footsie — a lot of stocks will tend to follow. It’s not always the case but it’s kind of like forex trading with training wheels because you only want to buy.
Typically, it’s easy if the market is really bullish to ride that trend and take a buy out of it. To me, I would say the pros of forex trading is that you have leverage which can of course burn you.
Leverage is like fire. It can cook your food or burn your house down. You’ve got to be really careful on how to use it. You can move a small account to a large amount of money rather quickly with forex trading because of the leverage.
You could also blow up your account and owe your broker money quickly because of the leverage. The pros is you have more leverage typically than you’re going to get in stock trading or share trading. But, share trading is easier because it’s usually just the question is where do I buy and where do I put my stop loss.
I mean, that’s usually the question. Whereas, in forex, it’s “Do I buy, do I sell and where to put my stop loss?” And of course, “How am I going to take profit” and all that comes to it as well and that’s really critical.
I would say that the pros of forex trading and all that, you can trade it at any time. It’s a little bit overblown because it’s difficult to make money during the Asian session unless you’re trading lower timeframes and you’re doing some sort of mean reversion trading — which I don’t do — which I suppose you could. So, forex trading is good that way. The other thing that’s nice about it is the charts are really clean.
I was talking to a buddy about this the other day. He was asking me about trading. He’s a businessman and he was saying, “Oh, you’re making money”.
Again, as we record this, there was recently in the news. United Airlines is going through a lot of stuff and they’re worried about how they were treating passengers and stuff and he said, “Oh, you’re making money on United Airlines?” I’m like, “No, man. I don’t even trade stocks. I hate those charts.”
The charts are ugly. If you’ll look at stock charts, they’re really gappy. They move around and they’re choppy. Whereas, these forex charts have beautiful moves that are clean and crisp and there are very few gaps. They are very predictable when you’re going to see them and not so much with shares.
I don’t really like the idea of trading a chart that can get out of hand and go really far away from me. Of course, it can happen and does happen in forex but I look at shares charts and I see a lot of gaps and they’re not very pretty.
I like the fact that forex is accessible to anyone, that you can start with a small amount and that’s not necessarily the case with the stock trading. You can trade penny stocks which are completely different animal on their own.
I would say the fact that you can start with a really small amount and get your feet wet is great. The fact that you can trade at night after your job or whatever is probably, depending on where you are. That’s pretty good too. And, the fact that the charts are — if you’re into technical analysis — the charts are great for technical analysis.
I mean, forex charts are beautiful compared to futures and stocks. Forex charts are just beautiful for technical analysis because they’re so smooth, because they go through all the prices. It’s so great, you don’t get that choppiness. But, of course, the cons are people often don’t make money trading because they have to decide whether to buy or sell and they use the leverage.
I was going to make some funny remark about monkey. What will a monkey really like? What will monkey like, bananas? What else do they like?
Hugh: Yeah, I guess so. I don’t know.
Walter: So, like a monkey in a banana warehouse. A monkey goes crazy in the banana warehouse. That’s what these people do when they get into forex. They’re gamblers basically and they clicked over from roulette and now they’re into forex. They’re on online roulette, they’re online poker, and now they’re playing forex.
Hugh: 500 to 1.
Walter: Yeah, exactly. Don’t bet on the Euro. You can always tell what kind of person they’re looking for when the brokers put that ad up that says bet on the Euro. They know what they’re looking for.
They’re looking for the gamblers so that’s what I would say. Really, if you want to get into trading, probably the best place to start is with share trading. You can probably find a demo account or something to do that with share trading.
In fact, I’ll put a link in the shownotes for you if you’re looking for that. That’s probably the best place to start and then slowly work your way into forex but it’s really good for technical trading.
It’s really nice that way but those are my thoughts anyway. Do you have any thoughts on that? What do you think about forex in general?
Hugh: I actually thought it was an easier mark to start with. When I think about it, I think you’re right. When you trade shares, there’s a tangible company. There’s a profit and loss with the company and I guess it’s easier to comprehend. I guess it would be easier to start but, like you said, I totally agree with all the pros and cons. And, just another trading mark, right?
Walter: Yeah, it’s tricky. I mean, it depends on how you wrap your head around it. People feel like they need to know a lot about forex, like read news reports, because they’re approaching it like from a share point of view and that’s not necessarily useful.
They feel like, “If I’m going to buy stock in Tesla, do I need to know all about Tesla once their new car coming out and this and that.” They feel like they needed the same approach with forex.
They go, “If I’m going to buy the EUR/USD, I need to know what’s going on with the countries, which ones are going bankrupt and is UK going to pull out of the European Union.” They feel like they needed to know all these things.
I don’t agree with that belief. I believe that you just need to know what the charts are doing but that’s because I’m a really pure technical trader and that is not going to jive with everyone.
It’s a tricky thing but I think you need to do it in stages even if you don’t go into share trading first. You might go in demo. You can demo in share trading or demo in forex and just work your way through that.
Forex tester, we can put a link there for you. That’s a great place to start in terms of trading in a simulator. All of that stuff is really cool to get used to it but, at the end of the day, you have more decisions to make when you’re trading forex.
I think it’s a little tricky. It’s something that can be really rewarding if you’re disciplined in your approach but can also be super frustrating. Hopefully that helps.
Hugh: For sure. Thanks, Walter. That’s awesome.