Traders should -Specialize or Diversify

By | November 2, 2016

By Raj

The greatest number of losing traders is found in the short-term and intraday ranks.  This has less to do with the time frame and more to do with the fact that many of these traders lack proper preparation and a well thought-out game plan.  By trading in the time frame most unforgiving of even minute error and most vulnerable to floor manipulation and general costs of trading, losses due to lack of knowledge and lack of preparedness are exponential.  These traders are often undercapitalized as well.  Winning traders often trade in mid-term to long-term time frames.  Often they carry greater initial levels of equity as well.” Walter Downs

During my trading Seminars many traders asked me ” Is it better to diversify and trade many instruments or specialize and trade just a few.”

Let me try to give the answer to the question

I am in the later camp, as it takes all my usable mind capacity to manage just one or two positions concurrently. Others prefer to trade many instruments saying it increases opportunity and reduces risk by diversifying. However in futures trading, and short-term in particular, there is no  “free lunch” that comes from diversification . By trading more instruments it does perhaps give you something to do when other markets are slow. This however could also be viewed as a negative, and maybe it is better to not be in the markets at times.

It makes sense to me to trade based on opportunity. Yet, in practical trading-life these opportunities are so difficult to find, it takes being a specialist to uncover them.  By trading more instruments it does perhaps give you something to do when other markets are slow. This however could also be viewed as a negative, and maybe it is better to not be in the markets at times. It makes sense to me to trade based on opportunity. Yet, in practical trading-life these opportunities are so difficult to find, it takes being a specialist to uncover them.

2 thoughts on “Traders should -Specialize or Diversify

  1. Shyam

    In fact, all we have to do is nothing, and everything deteriorates, collapses, breaks down, wears out, all by itself – and that is what the second law of thermodynamics is all about.” So, choose stocks where order and complexity has not fully evolved or will evolve in anticipation of some external energy.

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