Years ago, before I was a Forex trader, I did the usual trader stint in the stock market. I watched P/E ratios, tracked company performance and tried to analyze which company might rise next.

Of course, it was my job at the time and I did alright with my trades. But the truth is my portfolio would have performed so much better had I known what I know now. I’ll get to that in a second.

First let’s talk about the transition.

It was a difficult time for me. Mostly I had to change my thinking and how I evaluated trades when I came over from the stock world. I had to stop thinking like a stock trader to start thinking like a currency trader.

In doing so, I learned a few tricks that can not only boost your Forex trades…but can also help you boost your returns on any stock trades you place from now on.

What Separates Currencies from Stocks in Trading
(Beyond the Obvious)

There’s one fundamental truth you need to learn when you’re making the shift from stocks to currencies…

Stocks are relatively micro and currencies are relatively macro.

By that I mean that when you study stocks, you are mainly analyzing industries and individual stocks mainly. In currencies you are analyzing the health of whole economies.

For instance, you usually analyze stocks by choosing a specific group of companies or particular industry of an economy. Then you look to see which sector or industry is performing overall (ex., Healthcare sector, technology sector, energy sector, etc.).

Once you find a leading group or industry, then you’ll usually drill down from there. You’ll start examining a handful of companies within that group or sector to see which are the most fundamentally sound and thus, most likely to be some of the “top performers” out of the group.

You would do this by looking at a company’s earnings, dividend history, etc. You buy the stocks that have a steady (and above average) growing stream of earnings and dividends. On the flipside, you avoid (or sell-short) the companies that have choppy earnings or that didn’t earn money at all yet.

Well, in currencies, you’re looking at not one specific company, but an entire country. Ergo, you have to start with the macro picture and drill down from there.

I like that because you don’t have to worry about 1 CEO or 1 CFO screwing up your overall investment trend. An economy does well because the companies within it as a whole, do well. So it’s like being able to invest in that economy broadly and with less overall risk than an individual stock.

If You Know Nothing Else About Currencies, Learn This…

In currency land, what matters most is if there’s enough inflation (CPI – Consumer Price Index) in the country to cause central bankers to hike interest rates. Currency traders drool over hiked interest rates because they can earn more money on their currency trades than if they were buying a “low yielding” country’s currency.

So inflation and interest rates are the top two things to look at. A third important factor is the economy’s overall growth, which can be found in their GDP (Gross Domestic Product) numbers.

Introducing the Holy Grail of Forex Sites

You can go to one simple site to find that information on any of the major currencies out there: www.tradingeconomics.com .

That FREE site will rank the countries that have the higher inflation, higher interest rates, higher GDP growth, etc.

This way, within seconds you can get an idea of which countries are the strongest from a “currency perspective” and which are the weaker ones.

Then, once you know this, you will improve your currency returns. As an added bonus, when you’re doing your currency research to see which countries are “better off” than others from a fundamental stand point, you’ll also know which countries you might want to “shop for stocks” in.

Frankly, I wish I had known that when I had been buying stocks – my trades would have been that much stronger from a fundamental perspective.

Keep in mind that you can also look for ETFs that will hold a “basket of stocks” from a certain country too. That may be the best way for the newer investor to get their feet wet.

This way, your currency research not only benefits your currency investments but it also helps your stock investments.

Hot Stock Tips from the Currency Trader

After all, if you’re buying stocks in the strongest economy in the world at the time…you automatically stand a better shot of your investment earning profits. In fact, you’re really making an overall investment in the health of the larger economy that the company resides in.

While I always try to pick superior stocks, I also realize that even a mediocre stock in a great economy will many times do better than a great stock in a horrible economy.

Happy Trading!
Sean Hyman, aka Professor FX

P.S. Stocks aside, if you’re a seasoned trader you can use all these tricks to boost your trading. That’s what my buddy Ashish does every single week for his Exotic FX Alert subscribers. He starts with the macro ideas about each individual emerging market economy and then uses technical analysis to drill down the best exotic currency trades in the world. Click here to learn how to copy his best moves in Forex.