Thursday, March 30, 2006

Become a specialist

Do you trade always the same contract? Are you a specialist?

A lot of trading books for futures traders recommend just that. Trade one contract, learn it’s patterns, become a specialist. For stocktraders (at least stock daytraders) this notion is preposterous. They trade what moves, they scan the stock universe and trade what comes up on the radar screen.

On the other hand I know, that the big companies have specialists, they have one guy to trade MSFT, another to trade CSCO and a third to trade INTC. Being a specialist has advantages, you know how your vehicle moves, you know how far it moves before you can expect a bounce, what the ranges are. A specialist needs one look at the tape to know, whether the stock is moving quite normal or if extraordinary conditions requiring a different trading style are present. A stock hopper will fall into the traps market makers build using their huge resources, a specialist will see and avoid them.

Futures traders are by nature limited to a smaller universe, as there are a lot more stocks than futures to trade. And once you try to limit your trading vehicles you will start seeing the advantages of becoming a specialist. Consitent profitable trading is not about the big home runs, it’s about making sure you are able to make the consistent small profits. And that’s a lot easier if you are a specialist and know exactly how the contract or stock you trade behaves.


david andrew taylor said...

A lot of people need to take this advice. I really focus on one currency: the USD. I then take positions against this (up or down). This is contra to the way a lot of traders approach the currency markets. As for the crosses, can't remember the last time I even looked at the charts.

Rick said...

I have a mate who makes millions trading options. His only contract is the FTSE. He has done it since it was able to be traded so many years ago.

His specialty makes him and his ride-along clients a lot of money over the longer term.

I will take this subject up on my forex blog, because it is really worthy of study.

Thanks for the reminder.