Why Its So Important To Specialize In The Stock Market

The summary of this article is "Winners Focus Losers Spray". Have you heard of this expression?

Time and time again I found this to be very true. Let me tell you a story about this kid. When he was 12 years old studying in primary school, he entered 9 different sporting events during the annual schools sport day. From morning till afternoon he competed in the events one after another. He expected to win at least one medal.

That was diversification.

At the end of the day, he won nothing. Not even a bronze medal.

So when I got back home. I told my dad about it and that was the first time I learnt about this phrase.

"Jack Of All Trades, Master Of None" said my father.

That was my first lesson in life that trying to do everything will only lead to failure. If only I had focused on one or two sporting events I might have won some medal.

When I was in high school I did not repeat the same mistake. At 14 years old I entered only one event. The triple jump event. After my failure in primary school, I thought that I could not win any medal in any event. But the teacher told me this "It's ok just try, who knows you will win something".  Well, at least I participated in something. I came third and got the bronze medal.

That became my favorite event.

And one year later, I won the gold medal.

Fast forward 20 years later, I'm too fat to even jump. 

Anyway, my event now is the "stock market" and everyday I look for stocks that are going to jump higher.

Be A Master Of One

The stock market as I always say is "the hardest place to make easy money". No joke at all. You can just look at some of the finest and smartest brains in the world like doctors, lawyers and engineers who made millions in their profession and lose millions in the stock market.

No offence, its just how the market works. The market goes where it wants to go and it is a respecter of no person.

The collapse of Long Term Capital Management, a big hedge fund managing billions of dollars with Nobel Prize winners behind it is a testament to us that even the smartest brains will fail without proper risk management.

I digress.

Since the stock market is so difficult to comprehend, its best to specialize and master one area.

  • If you're a value investor, stick with value investing
  • If you're a growth investor, stick with growth investing
  • If you like to trade stocks hitting the 50 MA, then just stick with those plays
  • If you like ascending triangles, then just play stocks that are making ascending triangles
  • If you like to play breakout of consolidations, then only play those patterns

You only need one trading strategy to make a living in the markets. If you learn everything about technical analysis and try every trading strategy there is in the world, you would be a "Jack Of All Trades, Master Of None". Don't you think its better to be humble and be a master of one?

Specialization Allows You To Be An Expert In One Area

If you trade one chart pattern or setup day in day out, there is no way you won't know everything about that pattern within 3 years. Because you live and breath that trading setup, you will encounter every situation that comes your way and know how the setup behaves in different market environment.

  • You will know when the pattern works and when it doesn't work
  • You will know when to play bigger and when to play smaller
  • You will know when to take profits faster and when to hold it a bit longer
  • Your experience will give you a gut feel on when things are alright and when you should get out fast

Everyday I analyze many many stocks.

Some for my own and some for friends. I try and scroll through as many stocks as possible. Some stocks that I analyze for friends are so good that I know they have a good chance of going up. But still I won't trade them because they are not my area of specialization.

I like the Dow Jones, Nasdaq, S&P 500 index and etfs and play mostly stocks in the Nasdaq 100, S&P 100 and Dow 30. The rest I don't like to touch them. Sure I will miss out on some superb winners but then again, you can't make all the money in the world.

Specialization Allows Your Edge To Play Out

If you specialize in one pattern. Say the ascending triangle, you will be an expert in it. You will start to notice them in the weekly time frame, the daily time frame, the 60 min time frame and even the 5 minute time frame.

The patterns work the same in different time frames. The entries, the setup, the initial profit target are about the same with slight variations in different time frames. But you get the idea. Playing one pattern long enough will eventually make your edge play out.

If you could get a reward to risk of 2:1 in the pattern, it will work out very well for you over 100 trades.

But if you change different strategies here and there, your edge may go up and down and so will your trading results.

Master One Strategy Or Pattern Before Moving On

Seasoned traders will be able to trade different setups and patterns and come out on top. That's because they are experienced.

Its best to master one strategy and be profitable in it before moving on to another strategy. You can paper trade new strategies and if they make money, then you can commit real money.

Conclusion

Just as with any other profession, it takes time to be a master of something. We all prefer experienced doctors, lawyers and engineers to do our work. It took them a lot of time to be where they are today. In the same way, trading an investing is also a tough profession. It might take years to be good at it but at least it allows the new trader who specializes a faster way to make a living. So, be a master of one.

  • If you like this article, consider starting the Stock Market Course. It is free and jam packed with great information for newbies.
  • Want to have updates on the financial markets? Join my Telegram Channel. Dstockmarket.com Channel.
  • Help support this page and press the Facebook Like button below. Thanks!

Recent Articles

  1. Technical Analysis Lessons From OKA Corp Stock Chart

    Aug 17, 18 05:07 AM

    In this lesson we will take a look at the technical developments of OKA Corp's stock price and why it moved the way it did. We will also have a look at what might happen to OKA's stock price.

    Read More

  2. Technical Analysis Lessons From BMY Stock Chart

    Aug 16, 18 07:28 AM

    In this lesson, we will learn how and why BMY manage to bottom out and start a new uptrend.

    Read More

  3. Technical Analysis Lessons From Pentamaster's Stock Chart

    Aug 14, 18 08:19 AM

    In this lesson we will learn and examine why Pentamaster was able to recover all of its losses to start a new uptrend and achieve new highs.

    Read More

  4. Technical Analysis Of KLCI August 13 2018

    Aug 13, 18 05:56 AM

    The KLCI is currently at resistance territory after a nice big rally. I would consider a sideways trading a possible scenario at the moment.

    Read More

  5. Technical Analysis Lessons From AAPL's 15 Min Stock Chart

    Aug 13, 18 05:22 AM

    In this lesson, we will learn how AAPL's 15 Min stock chart formation help to send the stock higher for 2-3 days to give traders a nice swing trading opportunity.

    Read More

New! Comments

Have your say about what you just read! Leave me a comment in the box below.