You may think that just because you CAN trade any market – be it
forex,
stocks, futures, or options trading – that you should be involved in
several or indeed many. In fact, the modern trader IS presented with a
wealth of opportunity. With the advent of 24-hour forex trading for
example, you can trade at almost any time you wish in the business week.
However, just because you CAN trade any market does not mean that you
SHOULD. A key component to achieving huge success in Trading, as in life
in general, is the power of Focus.
Most beginner traders, and actually many professional traders too, never
understand this most basic of points. The truth is that your mind can
only focus on about two to three markets in depth at the same time. That
means that if you are busy spreading yourself across ten or more
different markets, and constantly coasting for all manner of trading
opportunity, then you are almost certainly spreading yourself too thin.
Focus is key, and it is something that you need to always strive for, no
matter what your level of trading experience may be. It may be a hard
lesson to accept with all those exiting opportunities out there in the
high-action worlds of forex, stocks, bonds or whatever, but it is a key
one.
It was multi-millionaire Steel tycoon Andrew Carnegie who said, “Put all
your eggs in one basket… and then watch that basket!” That approach is
particularly true of Trading, even though it goes against the
traditional investment portfolio view called Diversification. Now, the
latter may be of some use for portfolio managers. However, for the
individual trader, it is not the best advice at all.
Believe it or not, some extremely successful traders only trade ONE
instrument. I have heard of one private trader, who has made over a
million dollars a year, and who only trades Soybeans. However, that is
not all. He actually only trades one specific contract month of
Soybeans, and he knows that market inside out!
Can you say the same about the markets that you trade?...
If you are forex trading, do you try to punt Sterling, Japanese Yen,
Swiss Franc, Canadian Dollar, and Euro on consecutive days of the week?
Or, do you REALLY know one market, inside out and back to front?
The latter is almost certainly your best approach. Before you can
conquer many markets, don’t you think it would make sense to master just
one first? Once you have done that, you can certainly expand into two,
three or more. However, you then apply the same process to each and
every market that you approach; namely, in-depth research and analysis
- really KNOWING your market - is the key to success.
If you are a private trader, and if there is no external pressure upon
you to do otherwise, you would do best to limit the number of trades you
have open at any one time to a maximum of three at most. My friend, the
later Robert Krausz of New Market Wizards fame used to say that this was
about as many markets as the mind could focus on at any one time.
Some might argue that this is too limiting an approach, but for most
people, it is one key distinction that is going to help them to finally
be successful at Trading. Now, a corollary has to be added…
It IS perfectly okay to trade ONE method or system across a wide range
of markets, i.e. some sort of specified filter that you have determined
is valid and selects for you high-probability trade set-ups. For
example, if you have a stock filtering system that searches certain
volatility criteria in order to select potential candidates for doing
specific option trades, such as buying Straddles or Strangles for
example, that is just fine. Although many markets are involved, it still
falls under the umbrella of maintaining your trading focus because you
are focusing upon ONE trading methodology. Clearly, if you were using a
method like this on just one market, you would be waiting forever and
the opportunities would be few and far between.
Likewise, if you have a specific trading system that seeks specific
criteria that are easily searchable across a universe of different
securities, then this would still qualify. For example, stocks breaking
out to all-time highs or lows have a high probability of trading further
in the same direction. This has been known for a long time. Hence, if
you set up filters to sort for these each day in a program like
Metastock or Tradestation, once again this would qualify as ONE
methodology and hence you maintain a high degree of focus. The key is to
always maintain control of what you are doing and not to let it run away
from you.
Hopefully, you understand now the importance of the point that being
made. Put it this way: have you ever heard of a Wimbledon Tennis
champion who has also won the World Badminton, Table Tennis and Squash
Championships? In fact has ANY world champion from any one of those
sports ever won one of the others?
Why do you think that might be? After all, they are all racket sports
and they all rely on similar hand-eye coordination? The answer is that
although they are similar in the most basic principle, i.e. hit a
projectile with a racket or a bat, they are actually all totally
different in practice and worlds apart to truly master and achieve
world-class status at.
The same principle applies to your Trading. If you want to MASTER being
profitable, then choose a market - be it forex, stocks, stock indices ,
commodities or whatever - and a timeframe, and really work to master
that market in that timeframe. Or, as we have discussed, develop ONE
system and method that works by picking likely candidates across many
markets for the SAME TYPE of trade, and focus upon that. Master that one
market/timeframe or one method/system, and then you can expand to more
if you wish.
In conclusion, in this way you are behaving like a professional and
moving from strength to strength; treating Trading as a business, which
is what it actually is.
