Is automated trading the holy grail for the stock market or is it better suited for Forex? There is no holy grail in trading and if it were it would not be automatic! If it were possible to develop a trading algorithm, the holy trading grail, that automatically milks the markets on a constant basis, everyone and her grandma could do it. Of course that is impossible, because only a small minority can gain constantly in the markets.
Stocks are more about selection than Forex. Not necessarily because you can’t trade stocks without selecting your trading set beforehand, but because you can’t select something meaningful in Forex. There are only a few main currencies and in most cases one of them moves against all others. Basically you have in Forex one moving price, the currency pair you are watching and that’s it.
Picking stocks automatically is something that is hard to do. You could crunch fundamental numbers through your system, but the outcome would still be highly disconnected from reality. An algorithm has no idea what kind of company it is “thinking” about. Developing the automated trading system algorithm for Forex instead of the stock market is logical. That is probably the reason why software like MetaTrader and others exist.
Investing in Forex is a futile attempt. There is nothing to choose your investment from. Sitting twenty four hours in front of a trading screen isn’t nice either. Having a trading robot that is able to do the work for you was the luring idea. No trading gaps over night and a continuous trading session for almost a week. The perfect setup for the beach trader! The question is just, does it work?
Comparing all these autotrading robots with their trend following and random move outlier scalping techniques gives a very fuzzy picture. The reason for bad comparability of trading robots for Forex is the scalping algorithm. Typically it produces many small gains in a row. But then, when some rainy day ten times in a row the roulette machine says black, the robot wipes out your whole capital during your sweet night dreams. It is simply too time consuming to compare a trend follower and a scalper. For statistical reasons some years seem to be necessary, at least.
Essentially it is hard to say whether Forex autotrading systems work at all, work well or none of both. Theoretical considerations indicate that they won’t work. Why should they be able to win against the big bank trading computers? Why would the Internet sales guru sell you something for hundred dollars if this exact thing could generate automatically a doubling of his capital every single month or what else the advertising claims?
It looks as if the stock market is the clear winner compared with Forex. The very same that is done by Forex robots could be done with a stock robot. Instead of a meager three main currencies you would have thousands of stocks and hundreds of ETFs that could be traded by a stock algorithm. In its simplest form the selection is done by a human.
A good criterium for the penny stock market is recent volatility and much higher prices in the past. A semiautomated solution would be to subscribe to a penny stock picking newsletter. The honesty of the writer trumps his ability to read the future.
Basically Forex offers you overhyped trading programs. For penny stocks, automation lies in a penny stock picking subscription that comes up with interesting ideas and then you just have to follow the picks with the right money management. For stocks swing trading or trend following with specialized trading software is possible if a human trader makes the decisions and selections about the fundamentals.
Comparing Forex and stocks directly – well, there are thousands stocks and only a few currencies. Even futures have a broader base to choose from. Not to mention ETFs that are even better diversified than the market of pure stocks. Where do think the better or the smoother swinging charts could be found as a medium for your backtesting trading wizard or your autotrading hardwired robot?