That is, it may evidence growth processes which may increase share valuations over time. Might one expect these to be different from such processes in forex. In line with the arguments in this site, yes. But one might suggest that what one sees in equity processes are not the beginnings of long term trends, they are signs of such trends. That is there may be less information content in equity market day trading process.
That is, in forex one sees the beginning of pricing trends, there are certain patterns the market conforms to that one can make a reasonable guess that a market turn is taking place, but a market turn which will will almost certain probability turn at some stage in the opposite pricing direction. EUR/USD has shown how a long growth upwards was massively retraced in the crisis, other pairs show ranging over long time frames.
Those massive pricing changes during the crisis were an aberration to pricing behavior in the equity market up till the crisis, but they are not now, suggesting that those growth processes are either absent or that the market is in a state related to the beginnings of growth.
One can thus still examine the market for signs of something like a market turn. It may be this fundamental equity directional change, may show up in the equity market on shorter trading frames, as it may be a forex related process.
Forex over the long term does not necessarily grow valuations. It can, but whether it does may be a random process, but it is not necessarily so in equities, but as noted its beginning may be. The search for precision, may be a valid search, but it needs to look not at randomness.
The assumption of equities is that over time, share valuations will grow, sometimes like those growth spurts, but spread out over years, compounding equity valuations that you happen to have a share of. The company grows big and your shares grow big.
Does this happen anymore...but a whole school of investing is dedicated to this assumption and it has always restarted in the past, but with changes in the way the market functions, it seems and what companies are to be valued (again that may be a random process, suggesting that market predictability may only be about when to exit positions).
Companies which are regarded as hard to value have nonetheless done well since the crisis, and tended to be affected by this revaluation to a much lesser extent. I am not suggesting a lack of correlation, but the fashion in which the crisis market revalued companies as sets was interesting. It may suggest an approach to risk.
With forex one tends to assume that long term directional valuation is not going to happen. Let us assume that $ appears historically undervalued, why cannot one assume that it will grow, thus carefully invest money in this assumption in the forex market.
Because forex seems to be about optimizing valuations, and it maybe that a $ valuation that does not grow, is perfectly acceptable to the market, as an optimal value. It will range about though, there is no goal state for this optimization. It suggests that every valuation is optimal, which is an assumption of efficiency.
Those growth spurts even on longer term trades are discrete they do not seem to evidence the continuity that equities evidence. But one knows this and does not tend to treat forex pairs like a security. However assuming a security behaves like a security can lead to large losses over time. Thus there may be an equivalence of some kind.
The problem is that investors tend to look at large companies whose valuations are moved about by large bid and sell orders stacking in a short period of time, and then moving on. But they tend to look at them with the assumption that they are like those rare companies which can be found by various means which will grow.
In fact what they are looking at, is companies which behave like forex, but without optimization, which makes them risky. It might be said that the market right now is evidencing this. This is not only not an investing market it is not a trading market. Without optimization there is no directionality all.
It can be simulated by keeping interest rates at near zero, but this seems to produce valuations which range at high speed after being supported. This is what I meant by the fading stimulus effect.
However one can have a directional equity market which is not about optimizing. For example, long term trends in valuations of companies are not optimized. If they are about future projections, they are certainly not optimized, though it may be imagined they are.
Time and again it has been shown that the future may show these valuations to in fact be totally non-optimal. But are they optimal if they are grounded in company statements and the compiled knowledge of how the market computes this over time. This may be the case.
Thus financial analysis as practiced by some may be about optimization processes within companies. This may be what the market coheres with, to project future conjectured optimizations.
Are those optimizations within forex future conjectured optimizations real. Well, the problems in finding a grounding in such valuations in the way companies can be grounded in analysis, suggests they are not. But the process itself may be and that may be something to trade on, with some reduction of risk.
The problem for equities is finding that analytical optimization on shorter time frames and that process may not be in the equity market, but in the activities of companies.
This optimization is something that arguably US companies do particularly well, it can perhaps be seen in endless activity directed to a goal, that itself changes. As well as something to find in analysis, it may support those attempts to engineer companies from their very beginnings as ideas to be turned into wealth.
However, of course the emergence of companies to be successful may not have predictability, any more than it does once they are in the markets. This again is something that does not have an end point either, but the market can of course effectively create an end point, in terms of share valuations.
To maintain an optimization, one needs something to value, and preferably something existing, i.e. something that may particularly be looked for in emerging companies. The problem is valuing, but then again it may be not what it is, but whether the market can optimize it, which comes back to company structure as much as content. This suggests that any company could possibly benefit from engineering.
In terms of the initial question, forex over the long term may have safer assumptions of risk, but that does not necessarily make the market any safer. If one assumes that the equity market is a bull market and one can find directional bias at the levels of companies or basket of companies correlated to the market or non-correlated with this market, it may be safer to invest there, but these assumptions need to hold over the time frame of your investment.
In forex one tends to assume a trading market and work with this assumption. However at the level of process there may be arguments for looking for companies in equities by analysis, such that one is looking for long term growth, if the market functions over time to do this. It may not do it today, but one still has to assume it will over time. Forex does not make this assumption.
But the forex market is regarded as a highly risky trading market. Reduction of risk in forex comes down to reduction of trading risk. This is still a future contingent, but the assumptions are of a shorter term than equity assumptions, assuming that short term analysis of securities is of a similar practical risk to forex.
In practice it tend to be as very similar technical methods are used, thus whether or not the forex market is or is not like the equity market (i.e. questions of risk) becomes in a practical sense irrelevant, it is treated as if it were.
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