Find Trades in the Sea of Chaos

There is a current culture going around the world of amateur trading that 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 10 years - yea "more is better" seems natural in this world.

But is it really better when it comes to trading?

In the world of trading today, every day traders now 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 100 just 15 years ago. 

That makes for a lot of choice, and it fills the emotional need of "more is better".

But what is reality?  How do the best traders win?

A great trader and friend of TradeSmart, Anne-Marie, taught a series of classes for us a few years ago. In those classes she used to say "the market rewards the specialist, not the generalist".

I wholeheartedly agree with this statement, yet the majority of traders tend to lean more towards the "more is better" mentality. This is an amateur mistake in my opinion. It is far superior to become a specialist and be great at those 3-4 things than to diversify to the point that you have 20 different markets and trades you are trying to track.

When you consider "professional traders" 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 50 or more stocks. That's just not how it's done. 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. But the point is that trader knows this issue inside and out - he/she is a specialist and is rewarded for being such.

I 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 about how he spent 6 months not trading, and instead just watching the chart, watching the other traders, and learning the behavior of this company he was about to embark on trading for the next several years of his life. He was becoming a specialist. 

You can become a specialist too.

I have had the dubious honor of working with thousands of students over the last several years. Some go on to do great things in the market while others just seem to struggle month after month. The sabotaging agent is different for everyone. Usually it's not 1 thing, but rather it's 2-3 small things stacking up to create the negative results.

There are a few common traits however that I have seen consistently among my more successful students: 

1) Psychology 

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 my successful students have learned to be great winners in their mind first.

2) Money Management 

My most successful students, without fail, do an excellent job of managing their risk. I have a friend who is a fund manager who has often told me he would rather hire an average trader who is great at managing risk, than to hire a great trader who can't manage risk. Successful students have learned this and manage their risk.

3) Discipline and Focus 

Maybe the most valuable character trait is that of discipline and focus. My successful students are disciplined to follow their plan. They are disciplined to not get emotional. And they are focused on what they believe will work.

Many of our students have heard me talk about Butch, the retired fire fighter from New Orleans. I admire Butch because he is so extremely disciplined to follow his plan and not get distracted. 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. Sure he still learns about other strategies and sometimes he branches out, but he has found his bread and butter and he does it over and over. That's why he has seen great success.

Pick a set of stocks and stick with it!

Here is TSU's Top 150 Stock List. Every week in our Power Trader Live class we go through and look at the top 10. It's not that these 10 stocks are specifically the best in the world, but rather that 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 own trades and how you want to be successful moving forward, I'd like to remind you that the market rewards the specialist. Get really great at something and do that over and over. You don't have to have 250 stocks to trade (in fact it actually doesn't work in your favor), you don't need 15 different strategies. You just need to find a handful of stocks, and 2-3 strategies, and go to work doing what works over and over.

Try our Trader's Club membership, we release 2-3 trade ideas every week!!

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