When you’re starting out, trading can seem daunting.
There is so much information to process. You’ve got technical indicators, economic news, earnings updates, and more.
And that’s not even considering how many different sectors and markets there are – from commodities to currencies and beyond.
If you’re not careful, you can quickly get overwhelmed.
Then, if a couple of trades go against you, you might wish you had never started trading.
So here’s a key piece of advice.
Accept that you can’t know everything about every market. It just isn’t possible.
No one can keep up with all the news and stock movements.
That’s why I recommend picking just one thing to trade…
Narrow Your Focus
Some traders do best by focusing on a single stock, like Nvidia (NVDA) or Exxon Mobil (XOM).
Others prefer an index like the S&P 500 or Nasdaq-100.
Either way, you need to study everything you can about your pick.
Learn how the stock reacts to market news and economic events. Get a sense of the price chart and how the stock trends. Spot relationships – like how war can impact oil prices or interest rates can affect Treasury bonds. And so on.
The reason is simple – you want to become an expert in your pick.
Think about it…
One person spends all week trading just a single stock. Another tries to trade that same stock… and a dozen other things as well.
Who’s going to have a better shot at profiting from that stock?
Sure, the multitasker might get lucky once or twice. But luck isn’t a winning strategy over the long term.
I know from personal experience.
I began my career as a trader 40 years ago. But I didn’t truly start succeeding until I focused on trading just one product.
And later, when I joined a trading firm, I stuck to just one sector of the market. There’s no way I could have done my job and known as much about all the other sectors.
So with this in mind, how do you pick where to focus?
Where to Start
It may be tempting to flip a coin to decide where you want to specialize.
But generally, there are a few ways to find a good starting point.
You can start with an area that you already know. For example, if you work in healthcare, then you could start with health-related stocks.
Perhaps there’s a specific company that produces a medical device or treatment you’re familiar with. Or maybe you want to stick with a sector ETF. Either way, you’ll have a leg up from already having a baseline understanding of the field.
Yet that’s not the only way to decide on your trading focus.
You can also find something that you’re interested in. After all, if you work in an industry all week, you might not feel like reading about it in your spare time as well.
Instead, maybe your passion is technology. If so, then tech stocks might be a better place to begin.
Just be careful not to let your excitement get ahead of you. Whittle down your list of potential stocks to one or maybe two that you will trade.
Again, a sector ETF can be a good choice if you’re having trouble narrowing down your list. That way, you can trade tech (or whichever sector you pick) without having to identify the best-performing stocks as well.
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One Thing at a Time
To be clear, this doesn’t mean you have to stick with one stock for the rest of your trading career.
Ultimately, you may see promise in another stock or sector. Or your interests may evolve.
So if you want to switch from tech to industrial stocks at some point, that’s fine. Yet my advice remains the same.
Just remember to focus on one thing at a time. Learn all you can about what you want to trade. And stick with it long enough to gain expertise.
Especially as a new trader, trading just one stock will vastly increase your chances of becoming profitable.
What’s more, it will save you a ton of headaches from always trying to work out what to trade next.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. Trading a single stock or index is something I’ve put into practice for 40 years.
It helped me go on a 20-year winning streak during my hedge fund days.
That feat put me in Jack Schwager’s Hedge Fund Market Wizards in the chapter right after billionaire Ray Dalio.
It also helped me make a million dollars or more in a single trade more than 500 times throughout my career.
Next week, I’ll continue sharing insights on why specialization can be a lucrative way to trade the markets.
I think you’ll find it very useful – especially with markets looking so stretched.
So, stay tuned…