How to Find Your Niche as a Trader

Michael Jordan is one of the greatest basketball players of all time…

But when he went into baseball, he never made it past the minor leagues.

It’s simply not possible to do everything successfully. And it’s the same way with trading.

Some traders are in and out of one hot trade to the next. Whether it’s cryptos, stocks, currencies, or commodities, they think they have the market on a string.

But someone who trades this way is likely to spread themselves too thin… and barely keep their head above water.

The best traders narrow their focus to one specific area.

Yet this is often a dilemma for new traders…

Where do they start? How do they decide what they should trade?

I blew up my account many times over before I was able to figure this out and finally make it as a trader.

So today, I want to share some tips that will hopefully help you along the way…

Don’t Try to Be a Jack-of-All-Trades

Before we get to the tips, let me make a distinction between being a trader or an investor.

Investors typically have a long-term goal in mind, such as saving for retirement. So they’re more willing to ride out the market’s ups and downs.

After all, when you have decades to go, the day-to-day fluctuations matter less to achieving your target.

Traders, on the other hand, focus on much shorter time frames. A trade could last a month, a couple of weeks, or even a day.

Because of this, trading tends to be far more active. A professional trader might even make hundreds of trades in a single day.

The ultimate goal of all this action is to beat the returns you’d get from simply buying a stock and holding it over time. Rather than riding out the market’s swings, a trader wants to take advantage of them.

So when you’re trying to get into the market, you need to decide… are you an investor or a trader?

In my case, I got into trading because I loved this action.

I started on the trading floor of the Chicago Board Options Exchange (CBOE) back in the mid-1980s. People were yelling trades at each other. It looked like pure madness.

Even when things transferred to phones, there was still a lot of chaos. When the market got busy, 20 phones were ringing. I had a phone on one ear, a phone on the other ear, and a phone on top of my head.

During those early chaotic days, I had some bad habits…

One was poor risk management. I put too much of my limited capital into each trade. When the market moved against me, it tore a big hole right through my account.

The second issue was far more basic… I tried to trade too many things.

One day, I’d be trading Chrysler Motors. The next day it was Revlon, and then Litton Industries, a large defense contractor at the time. Just a bunch of different names.

Only when I gave up trying to trade a bunch of individual stocks… and concentrated on the major indexes instead… was I able to turn things around.

By trading indexes like the S&P 500 and Dow Jones directly, I only had to get the direction of one thing right.

That allowed me to focus on the bigger macro picture and what drove the broader market… rather than get bogged down in countless other stock charts and a sea of quarterly reports.

By watching just one index, I could see how the market reacted to important economic news and events.

And that gave me a massive leg up as a trader.

Too Competitive

As I mentioned above, it’s just not possible to keep on top of all the things happening in all the markets all the time. No one in the world can do that.

But another reason is simply the sheer competitiveness of the market…

If someone else specializes in just one part of the market, and it’s the only thing they trade, how do you compete against that?

Just look at Warren Buffett and his blue-chip stocks, or Cathie Wood and tech. These kinds of people focus on what they know and get rich doing it.

If you’re riding a dozen positions or so at the same time, it’s impossible to keep up.

By the time a piece of bad news washes through the market, the specialists are already out of their positions… long before you even know what’s going on.

So where do you start?

Trade What Interests You

One of the more popular pieces of advice is to start with a part of the market you know.

If you work in the energy sector, you might stick with just a couple of stocks like Exxon Mobil (XOM) or Chevron (CVX).

If you want to simplify things even more, you could instead trade a broad-based energy exchange-traded fund (ETF) like the Energy Select Sector SPDR Fund (XLE).

On the other hand, if you work in an industry all week, you might not want to spend your spare time reading about it as well.

If that’s the case, then simply choose an area you’re interested in… whether that’s technology or precious metals or one of the many other sectors out there.

That way it won’t be a chore to learn all you can about it.

Again, the key is to narrow your choice into just one or two stocks or an ETF. Then learn what factors drive that market.

Narrowing your focus this way will greatly improve your chances of becoming a profitable trader.

It has been the key to our success at my introductory-level trading advisory, One Ticker Trader. As the name implies, we trade just a single ticker each month.

My last five trades have all been winners, with gains of 24.8%, 22.4%, 88.8%, 66.7%, and 100.0%. And most have happened in roughly a week or less.

And that’s the kind of consistent gains that are possible when you dig deep and truly find your niche.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict