Specializing In What You Do

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Specializing In What You Do

In the everyday world, we take our specific problems to a specialist. You want a mechanic who specializes in the particular make and model to work on your car. You seek the opinion of an orthopedist for a problem with your knee. To address specialized problems, we look for experts with specialized knowledge, information, and training. The same goes for trading. In trading however, the trick lies not in finding an expert to address your problem, but in becoming that expert.

Once you’ve decided to trade, you must determine the kind of trader you want to be. What kind of time and energy do you want to commit to trading? What are your personal reward goals? Do you think that you should be a day trader? You may find that it’s too stressful during the day if you have to sit in front of a monitor and make trades every 15 minutes, when you could be doing other things you enjoy. In other words, your trading strategy must fit with your personality. Many traders have a broad understanding of many approaches to trading, but most rely primarily upon technical analysis as the basis for their short-term decisions. However, technical analysis is a vast body of research and literature, covering everything from simple chart patterns to complex computer-based neural network systems.

Personal interests may play a roll as you narrow the field of technical-based approaches to the one most suited to you. For example, if you have an engineering or mathematical background, a statistical system such as Moving Averages and Bollinger Bands will likely make more sense to you. If you are a visual person, then recognizing patterns such as triangles, wedges, and Butterflies may come more easily.

There are 2 schools of thought: The first says that it’s best to focus on a group of securities, such as a basket of futures contracts or stocks, and learn how they move and what forces drive their movement. The second school says “trading is trading” and everything can be traded the same way. I personally follow the first school. Here’s a true story of somebody that followed the second school. After I had been in the business for a few years, I had a client referred to me that was a pretty big trader in the SPoos, and had done pretty well. He wanted no advice from me, which was perfectly fine with me because I knew it would be a waste of breath anyway. He thought he was George of the Jungle when it came to trading SP futures, so now he was going to use his expertise to trade Pork Belly futures. He knew somebody in the industry who had given him the “inside scoop” that there would be production cuts, and the charts looked oversold to him.

So, he loaded the boat long, ignorant to the fact that Bellies pretty much ignored both fundamentals and technicals, and also traded in light-volume bursts with limit days quite common. He also had no idea that the Pork Belly pit was made up of 3 commercial brokers and about 5 locals, who didn’t want to share their playground with anyone else. After 4 limit-down openings in a row, and a couple of margin calls, he finally was able to get out with a sizable loss. Needless to say, after that, he stuck with what he knew best.

Plan your trade, trade your plan!

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