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....Divided We Fall
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by Rick J. Ratchford
As a market analyst and a publisher, not to leave out a full-time trader of
the commodities market, I must cover about 30 markets each and every week.
The depths to which I must go prior to publishing my information is tedious
and time consuming, but when completed does not leave much left unknown for
the short ot intermediate term.
One would think based on all this that I would be able to take advantage of
many markets at the same time, therefore making a killing in the market.
However, nothing can be further from the truth.
The problem here is that many markets divides ones attention and can
actually be detrimental to trading. I have found that after analyzing up to
30 markets a week, there are at least 10 or more opportunities to take
advantage of. Once I've entered 2 or 3 markets, I find that I have spread
myself thin mentally and cannot watch anything else till I've liquidated my
current positions.
Many times, I realize that I've let several other great opportuniites, all
of which I knew what they would do, get away from me. I'll take profits from
the markets I'm currently in, then look at entering other markets, letting
those original markets make big moves now in the other direction of which I
could have taken advantage of as well. Problem is, I've got too many markets
in my basket due to the nature of my business, and am not FOCUSED on just
one or two.
Many traders do this as well when they are following a newsletter or
hotline. They must get into every market that is setting up. What happens
here is that we never become really good at one market, but are just looking
for the next table to play.
Before I got involved in publishing market information, my focus was just on
Pork Bellies. I would make a trade on every swing because I knew how to read
it. An associate of mine does this with Soybeans. He can read it pretty well
like a book since he concentrates more on that market.
It is a fact, as many long term (survivors) traders can tell you that if you
can specialize in one market, maybe two at the most, you can make a lot of
money at it. Ask any question about the particular market, and that trader
can tell you what that market will most likely do. He is focused.
When you are focused on a market, year in and year out, you know its
characteristics. How can you possibly do this if you are diversified in a
big way and changing your markets weekly? I have no idea about how Pork
Bellies acts from one week to the other anymore, for now I only focus at the
time I create the analysis, but then my mind will go partially blank once
I've analyzed the next market and the next. Come trading, I end up missing
some very large moves in one or two markets so as to be involved in nearly
30 of them.
My suggestion for traders, based on my experiences and that which I have
discern by reading about many trading greats is to specialize in just a
couple of markets or so. Know how it sets up, ride it both ways, and get to
the point where you can recognize trouble ahead and reverse.
A trader who specializes just in Cotton can make a ton of money each and
every year. It doesn't have to make mammoth moves either. Each month you
catch the predominate wave and go with it, concentrating on your entry
timing and your money management.
If you trade in too many markets, here is what may happen.
You put your orders in for a few markets. You then transfix your attention
on one or two, since much could happen in a few minutes or hours. Meanwhile,
another market just missed your entry stop and soon moves up without you.
Where are you? Your watching carefully this and that market, and had you
been watching that other market, you could have acted in time to still
enter low risk and not miss the move. Problem is, your attention is divided.
Here is another thing to consider: If you have 2 hours to work with each
nite, the more markets you consider, the less time you spend on each one.
There is obviously a point where more time studying a market will not
produce any better results, but less time than necessary can cause you to
fall as at trader.
Pick a very small basket of markets, say 2 or 3, and learn them well. You
will always have a trading opportunity come up at least in one of those
markets almost every week. If you are a daytrader, no doubt you may already
do this. But position traders would do well to do the same.
By concentrating a just a couple of markets, you soon will not only know the
best way to apply your particular trading method or indicator to it, but you
also enhance your intuition about the market and this in itself can make you
a lot of money.
cheers!
:)
rick
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