What to focus on?
Importance of specialization in trading.
Bruce Lee once said, “I don't fear the man who has practiced 10,000 kicks. I fear the man who practiced one kick 10,000 times.”
In sports or trading, success comes to those who specialize in one genre and practice it over and over to master the process.
The best of minds in trading and investing are the ones who swear by one philosophy and stick to it through thick and thin. They specialize and never deviate.
If you are starting out, specializing should be your goal. Given that there are a zillion ways to make money from markets, even if you specialize in the smallest part of the game, you can make a fortune.
However, given the many possibilities in trading, it’s quite natural for a newbie to be distracted easily and hop from one thing to the other without meaningful results. This article helps you funnel your path toward specializing, narrowing down from the broad set of possibilities in the different asset classes, to mastering a few set-ups to trade on a regular basis.
Here’s how you must frame your specialization journey.
Start with the asset class.
Within a wide range of possible asset classes you can trade, you should narrow your list to one or a maximum of two asset classes. New traders would do well if they stick to one.
You must pick the asset class based on your psychological comfort. Different asset classes have different characteristics that might interfere with your optimal mental setup.
For example, commodity and currency trading needs you to trade on big leverage to magnify small moves. Many traders are not too comfortable with leverage and these asset classes would be a no go for them.
Even in a single asset class, there are a variety of instruments you can trade. For example, you can trade stocks directly or through derivatives like futures and options. While direct stock trading is less risky, the derivatives compound the risk and are not suitable for traders who are risk averse.
Most importantly, you need to learn about the asset class you want to trade. It will be easier for you to choose one over the other if you have prior knowledge of the asset class.
If you are starting afresh, you must ask yourself which asset class would come naturally to you. The idea is to not force yourself into an asset class for the lure of money. The best asset to trade is often the one you have a grip on.
Specialize in a style
Even in one asset class, there could be numerous styles you can trade. For example, in stocks, you can trade intraday, swing, positional, and long-term.
Each of these styles needs different processes and mindsets to trade.
Many personal factors will come into play when choosing a trading style. Factors like how much time you can devote, how much work you can do, how much action you need and how much risk you can take.
For example, intraday trading would require much more action and attention than swing trading, which in turn requires more action than positional trading.
Most traders don’t do well if they trade too much. Overtrading is a big return killer in most forms of trading. Therefore, start with a form of trading that requires less trading and action.
It’s okay if you try other styles and see what works for you but don’t blow up your account in greed. Increase your exposure only when you see yourself getting better in one style.
Specialize in one time frame
Specializing in a time frame needs you to choose a chart time frame that you would use to trade. For example, as an intraday trader, you can use time frames ranging from one minute to hours, and as a swing trader you can use days and weeks.
It’s best if you use only one time frame to find opportunities, set your entries, and stop losses. If you keep flipping between time frames, you will end up overtrading by justifying trading opportunities that don’t exist.
The best traders know their time frames very well and press the trade button only when the trade comes to them in their time frame. That’s the best setting for a trader – let the trade come to you rather than you going to the trade.
Don’t force trades by changing time frames every now and then. Choose one and stick to it even when you don’t see worthy trades for brief periods.
Specialize in set-ups and indicators.
There is no magic indicator or setup that can help you make millions out of the market. The best indicators and setups will likely be right only half the time or less. Therefore, it’s always a factor of how the trader uses these indicators to trade.
For example, you can’t use the moving average convergence divergence (MACD) indicator in every situation and hope to make a fortune all of the time. The indicator itself will give false signals, It’s knowing when to pursue the signals and when to ignore them that makes a trader successful.
When you specialize in indicators and setups, you develop the skill of knowing when to and how aggressively to pursue the signals that show up on your screen.
It may sound trivial but it makes a huge difference when you ignore the shabby signals that bring only unnecessary losses and mental pain, both of which are big deterrents to trading success.
Specialization is a long-drawn process and comes with time and practice.
When you start trading, it's not a one-way, smooth journey. There will be a lot of hiccups, deviations, losses, and anxiety about whether you are on the right path or whether you have what it takes to be a successful trader. All of that is part of the game and you must persevere to succeed.
Specialization in one asset class, style, time frame, indicator, or technical setup significantly narrows down your focus, which can make it easier for you to hold your ground in the extremely noisy world of trading.
I specialise 'in particular' in lateral consolidation breakouts on the weekly charts and have done so for decades.
Take the time to understand your personality, lifestyle, mindset, beliefs etc and specialise in a strategy that satisfies each of them.
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