This article is for all traders who wants to increase their success in trading. Me, too. And this is the first English article I am writing. I decided to do this on a topic which helped me a lot to make progress as a trader: Finding a niche in trading.
The most people want more. They want more from everything they can get: Time, money, food, houses, cars, love and so on. But we know that it’s not possible without giving up something else. That means: To have more money we have to give up time or energy or … It’s always a trade between two goods.
But there is one thing to consider. You can get a lot from one thing if you focus on it. Why? You spend all your energy on one sector. This is a big trade-off but in the end you get more. A lot of successful companies do that. In addition you find the saying „less is more“ in many self-help books.
Focus on a small niche and reduce complexity
Trading is not different from the rest of the life. If you want to master something, you must have a deep knowledge about it.
In my trading journey I learned this the hard way. At the beginning I was doing everything I could do. I traded stocks, commodities, forex, certificates … But this was just distraction.
After some time I discovered that I could build much more knowledge and experience if I focus on one thing. I started to focus on only stocks and my trading improved.
Why did my trading improved? Simple: It reduced the numbers of trades I made. And it helped me to focus on situations where I have an edge.
If you trade multiple markets (stocks, commodities, forex etc.) you have to build up knowledge in all of them. You must consider a lot of dependencies between the markets. This can lead to situations where you increase your risk instead of decrease it. The reason: Some trading instruments have a dependency, f.e. Gold vs. USD, EUR vs. European stocks and so on.
To make this more complicated: The dependencies between trading instruments can change. So you can see: This is too complex to manage, especially for a beginner. The only solution is to focus.
Becoming an expert in just one niche
If you focus on a niche, you have an additional edge. You get a much deeper knowledge and experience. With experience you can develop something like intuition.
For me intuition is nothing more than deep knowledge and experience combined. You can apply it without active thinkings. It is engraved in the structure of your brain. It is engraved so deeply that it influenced your feelings. You know it if you feel that something „is not correct“. That only means that you saw the same situation a thousand times before and now your brain sends you a signal.
This intuition or deep knowledge is linked to the hours of learning. If you spend 1000 hours to learn and repeat one thing you have a deeper knowledge about it. Your brain is trained and build the neural paths to handle that situation perfectly.
If you spend 1000 hours to 4 different things, you only spend 250 hours per each. That means you have less knowledge about one of the 4 things.
Now you could argue that all markets are the same, because they are based on price. Yes, that is correct. But there are small differences of the price-movement of these markets.
On a macro level all markets looks the same. But if you want to master a market, you have to look at the small differences. Remember: A master knows his area in every detail!
What does a niche looks like?
I started as a „jack of all trades“. Then I reduced more and more … I focused on only stocks, reduced my style to just one trading method, concentrate on only US stocks, sliced out the high potential/grow stocks niche, focused on mostly small- and mid-caps … This all helped me to make progress as trader.
It is funny, but the more I reduced and focus, the more progress I made!
If you look at your own trading, ask yourself: What can help me to make progress? This has a lot to do with your strengths and what you like. In the end you must do everything to increase your confidence in your trading. And if your trading method is perfectly fitted on your strengths and what you like, it increases automatically your confidence in it. Why? Because it reflects your personality.
Here an example from myself:
- I like stocks because there is a real supply and demand. You can see the volume and price-action.
- There are many sectors. So you can trade different trends inside the stock market and you can see the flow of money from one sector to another.
- You can trade stocks with a small and big account. The fees are low.
- The movements in stocks can be fast. I like that!
- There are real companies behind stocks. Especially I like technology companies with new today unknown products or services.
- I like to discover and search for stocks which matches my criteria. It is an endless „detective game“.
- You can apply screener on it and filter the markets. I have knowledge about programming. So I can apply it.
- With stocks you only trade small sizes and you can spread the risk between multiple positions.
The upper things are all embedded in my trading methods. I discovered them in the last years where I look at myself and ask me: Where are my strengths? What do I like? What do I think that markets work?
Don’t get me wrong. I am not a fundamentalist. The opposite is true! I make all my decision on price and volume. But it gives me additional confidence if a stock has an interesting story and background which is attractive to investors.
Putting it all together
The journey starts with an analysis of your current trading. If you collected data about your trading, you can take it as a starting point.
If you find out that you have a lot of different setups, trade multiple markets and make tons of trades, there is something wrong. Step back and ask yourself: What will happen if I remove something? What have my bad trades in common? What have my bad trading times in common?
In the most cases you will find out that reducing helps. If you master one thing perfectly the result is better. Think about a carpenter that creates tables. If he focus to create only one type of a table perfectly, he will make more money. Why? Because he has more knowledge about it and can produce a better quality. In addition the more experience helps to reduce the costs.
The same is true for trading:
- The more experience you have in one thing, the more you can pick the best setups and trading environment.
- You can reduce the time you spend trading because you will find the setups faster.
- The number of bad trades will be reduced dramatically.
Here is a small list of recommended trading books about this topic.
- Market Wizards Interviews with Top Traders
- Jack D. Schwager
- Herausgeber: Wiley
- Auflage Nr. 1 (02/07/2012)
- Paperback: 512 Seiten
- The Disciplined Trader Developing Winning Attitudes
- Mark Douglas
- Herausgeber: New York Institute of Finance
- Hardcover: 256 Seiten
- Mark Minervini
- Access Publishing Group, LLC
Last update: 9.03.2018 / affiliate links / Images: Amazon Product Advertising API