If you are wondering, or even worried about which market to approach, I found another discussion from book, Enhancing Trader Performance (Steenbarger, 2007) that offers insight into how to “choose” a market.
Traders cannot afford to find their niches when they’re in their 70s like Grandma Moses or even their 40s like George Blanda. Economic pressures—if nothing else—force traders into premature decisions about what and how they trade, reducing the likelihood that they will find multiplier effects*.
If researchers are correct, the ideal niche will be one that matches your native abilities and trains to the specific opportunities in a given market and style of trading that market. Unless you know what your talents are and how they might interact with the many potential niches in the trading world, the odds of benefiting from snowballing multiplier effects are small indeed.
Alternatively, if we can clearly identify our strengths and market opportunities—and especially the overlap between them—we will be best poised to find the kind of trading that will sustain our passions.
With that in mind, let’s go niche hunting.
Find the right market for you
An initial step in finding your distinctive place in the trading universe is self-assessment. Take a moment and answer “yes” or “no” for each question below. Jot down your response, and lets use your results to start you on your performance path.
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Have you tried trading different time frames (intraday, swing, long term) on an ongoing basis?
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Have you attempted to trade different markets (stocks, futures, forex, etc.) on an ongoing basis
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Have you experimented with trading different styles (technical, tape reading, quantitative, mechanical) on an ongoing basis?
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Have you been trading on a regular basis for a year or longer?
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Have you made major adjustments in your trading approach after becoming dissatisfied with your results?
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Do you have a trading method that you consistently follow?
We will take the first three questions first. These are the ”dating”** questions of trading: Have you played the field? Have you, like medical students, completed your rotations and sampled the many specialties in the field?
If the answer to any of these three questions is no, the follow-up question to contemplate is:
How do you know that you’re trading the right way for your talents and personality?
Maybe you happened to stumble upon the right combination of time frame, market, and trading style. If so, you’ll know you’re graced with luck because you’ll find it natural to trade in your chosen mode with your chosen market. Your trading will feel right, the way a good relationship or a career feels right. If, however, you’re finding trading frustrating and/or unprofitable, and if you answered no to any of the first three questions, perhaps the answer to your performance concerns does not lie in psychology. Perhaps you’re like Ray Kroc selling Mixmasters or George Blanda relegated to kicking for the Bears. Perhaps you’re simply performing in the wrong niche.
Now we get to the fourth question: Have you been trading regularly for at least a year?
Once again, if the answer is no, the natural follow-up question is: Have you truly had sufficient time and experience to try out different combinations of markets, trading styles and time frames?
If my daughter had less than a year’s worth of total dating experience and then told me she had found the love of her life, I would congratulate her. Then I would encourage her to cultivate the relationship for a while before making the commitment of a lifetime.
My advice is the same for a trader who commits to a market or trading approach after a few weeks of training at a firm or after attending a great seminar.
Sure, try it out, but consider alternatives. There is no sense losing 80 percent of your trading stake pursuing something that may not be right for you. If you’re in the right niche, it will be like being in the right romantic relationship: it will capture you; it will fire you up; it will be all you’ll look forward to.
If the glow isn’t there early, it certainly won’t be there later on. As in romance, never settle. Commitment should follow falling in love; the latter never emerges from the former.
The fifth question assesses a different kind of experience. The best traders I have known and worked with are tinkerers. They have refined their trading over time, and failure has been their greatest teacher.
Over time they become multidimensional, learning how to adapt to different market conditions. If you haven’t traded a year or more and made adjustments to your trading approach, the chances are good that you haven’t (yet) experienced dramatic market shifts.
“Don’t confuse skill with a bull market” is the old saying, and we saw what happened to too many “skilled” 1990s day traders at the turn of the century.
If you go to a clothing store, you may have to stay a while and try on many outfits before finding the right one. It will take repeated efforts and many adjustments to optimally tune your performance car. You learn your ideal trading style by experiencing styles and market conditions that are less than ideal and then refining your approach.
If you answered no to the question “Have you made major adjustments to your trading approach after becoming dissatisfied with your results?” you may have found a comfort zone that is temporary—one that reflects the current market but not the general marketplace. The odds are good that what you think is your niche now may not be the niche you occupy several years from now. Your challenge may not to be learn markets, but to relearn them as conditions change.
That brings us to the final question: Do you have a trading method that you consistently follow?
The last question is actually a trick question, because it is assessing a potential strength as well as weakness.
Many traders who veer from their trading plans recognize at some level that those plans don’t fit them. Their losses of discipline are intuitive gravitations to their natural trading styles. The answer to their problems is not to blindly adhere to their methods and work on discipline, but rather to determine whether those methods are truly the ones to follow.
The first step in climbing a ladder is making sure it’s leaning against the right structure.
Too many traders are furiously climbing misplaced ladders and then blaming themselves for getting nowhere.
When you have found your niche, you don’t need discipline to do the right things; you won’t want to do anything else.
At the risk of repetition, allow me to be clear about this: All things being equal, we will naturally gravitate toward those activities that we find fulfilling. We will avoid tasks that do not engage our talents and interests, and we will seek out experiences of success and mastery. If you are in your niche, you will consistently do the right things, because those come naturally to you. If you are not consistently doing the right thing, perhaps you have not found that point at the intersection of the circles that blends talents, opportunities, and interests. What we do when we’re inconsistent may just point the way toward our strengths by revealing what comes naturally.
