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.