When we start our journey as traders, we are bombarded by the different trading strategies available to us. You might have heard of trend following, momentum trading, bounce trading, and scalping.
But have you ever considered sticking to one strategy and mastering it? This might seem counterintuitive because you limit the number of opportunities that you chase. However, finding your niche and sticking to only a few strategies might be your key to finding success in the stock market. This article provides three important factors that show us the importance of finding your niche and sticking to it.
Level of Dedication
It is without saying that your niche should be inline with the amount of time that you are willing to put into mastering trading strategies. In reality, different trading setups require different levels of dedication. Trend following might be the easiest since you only have to use trendlines and moving averages.
On the other side of the spectrum, we have the Elliott Wave theory which combines multiple price action patterns as well as trend based Fibonacci retracements. There is no shame in using a simple trading system as long as it matches your lifestyle. In line with this, there is also no shame in dedicating hundreds of hours mastering a setup if you have the time to do so.
Risk appetite
Another thing to take into account when finding your niche is the level of risk that you are willing to take. Are you willing to trade high volatility basura stocks or are you better off catching swing trades with blue chips?
There are many testimonies of students and employees actively day trading in secret or in the restrooms of their workplaces. While this sounds compelling, it is not exactly sustainable. Imagine catching a ceiling play but then the stock goes down 30% while you are in an important meeting. How would you feel? Would you think that this play is the right one for you? Of course not!
Granted there are recent innovations in the world of trading that prevent these scenarios, it is still important to take into account the type of trades you make in relation to your risk appetite. If you have a full time job then you may want to stick to trend following and swing trades instead of breakouts. If you have a lot of time then you may want to trade high volatility plays in order to maximize the opportunities presented to you.
Trading Rules
A common mistake that new traders make is mixing different strategies together. An example of this would be buying on breakout of a sideways stock and setting a MA100 as a cut loss. The problem with this is the entry signal and the exit signal don’t match!
Mixing different strategies makes traders susceptible to whipsaws and very deep (in some cases more than 10%) losses. Once you find your niche, you will be able to focus on trading setups that are actually relevant to you. This means that if you are planning on trading a breakout, your entry, TP, and cut loss prices must be in accordance with a breakout trade and not with other trading setups.
Conclusion
In the end, although it is important to be familiar with the basic trading strategies, we must strive to specialize on the setups that bring us the most success. In this case, success does not only refer to profits, but it also pertains to our well beings as traders.
No matter how much money you get from a trade, if you feel burnt out and unfulfilled, you might get the desire to stop trading which ultimately leads to the closure of a supplementary source of your income. Finding our niche is truly the key to successful trading. Hopefully this article brings you one step closer to financial freedom.
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