There is a current culture going around the world which says more is better. It's a natural emotion considering the world we live in, a world where a gourmet coffee can be found in a drive-through, a football fan can literally watch every single NFL game for the weekend in their own home regardless of geography, and the internet pumps out more information on a daily basis than the world used to see generated in ten years.
In the world of trading today, we have access to stocks, options, futures, and forex markets, and in addition to that they have a plethora of new ETFs flooding the market every year. According to Morningstar, there are more than 1600 ETFs in the U.S., compared with less than one hundred just fifteen years ago which makes for a lot of choice. But is it better when it comes to trading?
A great trader and friend of TradeSmart, Anne-Marie, taught a series of classes for us a few years ago and in those classes, she used to say "the market rewards the specialist, not the generalist."
We completely agree with this statement, as it is far superior to become a specialist and be great at three or four things than to diversify to the point where you have twenty different markets and trades you are trying to track. It is relatively rare to find a trader who plays all of the markets at the same time and is looking at a screen of fifty or more stocks. It is far more likely is to find a professional who trades in the pit and focuses on just one thing. Perhaps it's corn futures, or maybe cattle or maybe S&P futures; regardless, the point is the trader knows this issue inside and out and they are a specialist in their chosen area and is rewarded for it.
We once heard a man talk who traded on the floor for years. The only stock he traded was U.S. Steel then after several years of trading this stock, his post was switched, and he went to work trading Microsoft. This man told us how he spent six months not trading, and instead just watching the chart, watching the other traders, and learning the behavior of this company. He was taking the time to become a specialist on all things Microsoft.
There are a few common areas which you can focus on in your journey of becoming a specialist.
Winning traders always have good psychology. They aren't afraid to make money, and they aren't afraid to lose money. They truly see trading as a game, and they love playing the game. They love playing to win, but they understand sometimes you're going to lose a couple of hands. Winning is very much a mental exercise, and all of our successful students have learned to be great winners in their mind first.
Our most successful students, without fail, do an excellent job of managing their risk. We have a friend who is a fund manager who has often told us he would rather hire an average trader who is great at managing risk than to hire a great trader who can't manage risk. Long term successful students have learned how to correctly manage their risk.
Maybe the most valuable character trait is being discipline. All of our successful students are disciplined and follow their plan. They are disciplined to avoid getting emotional over their trades and they are focused on what they believe will work.
Many of our students have heard us talk about Butch, the retired firefighter from New Orleans. We admire Butch because he is extremely disciplined to follow his plan and avoid distractions. His plan is simple: sell a put, if and when I get put the stock, turn around and sell covered calls. That's his plan, and he does it over and over and is rewarded handsomely for it. He still learns other strategies, and sometimes he branches out, but he has found his bread and butter, and he successfully does it over and over.
Every week in our Power Trader Live class, we go through and look at the top 10 stocks from our Top 150 Stock List. It's not that these ten stocks are specifically the best in the world, but rather we have chosen to focus on these for a given period of time. Some stocks on this list have been there from the beginning, others have rotated off, and some have found their way off and then back on.
The principle here is to limit what we look at, so we are not overloaded with trade possibilities. If we get overloaded with trade possibilities, then the next thing that will happen is we spend all our time analyzing and never trading or we trade without doing the analysis we need to do.
So, as you consider your trades and how you want to be successful moving forward, remember the market rewards the specialist. Get great at something and do that over and over. You don't have to have 250 stocks to trade; you don't need 15 different strategies. You need to find a handful of stocks and 2-3 strategies and go to work doing what works over and over again with proven results.