small basket of stocks vs scanning the market?

J

jamesblacktrader

I've noticed that some of the better traders who I monitor on various platforms seem to either

a) Specialise in 2 or 3 stocks. I guess they had their 'setups' and things they look for in order to take a trade and they find it easier to concentrate on a small group of good moving stocks. Maybe there's a benefit of 'getting to know' the 'personality' of a certain stock (if such a thing exists) over time and that's a benefit? I remember 'redneck' who used to post here and seemed to make big money used to basically only trade FB and maybe one other stock?

b)See their 'edge' in the fact that there are lots of stocks moving around and they are basically scanning the whole marker to find various stocks that meet their criteria (Maybe a gap or maybe a certain volume spike or a pattern or whatever it is) and will trade everything. Different stocks every day

It's like you are either trying to find stocks that meet you setup, or find setups on 'your stock'

I'm new to equities and am trying to get it straight in my head the 'best' way to approach this and why people choose a certain route over the other
 
I go for the set-ups first principle, then find the forex pairs that match the set-up, top-down rather than bottom-up if you like. But then I am a long-term trader, I count days when I don't have to make any trade decisions as good days rather than wasted days.
 
depends on the trader's personality

broadly, a) is an initial stage when a trader is mastering his setups

b) is another stage when a trader has mastered his setup, & is looking to expand his setups across more assets. scanning is another skill to learn

trading a) will give you more focus, to acquire detailed knowledge of a stock / market maker / large participants' specific behaviours. trading b) will not allow you time for such, n will prob be statistics or patterns based approaches

there r exceptional types of trading. eg. traders who used to arbitrage A vs B shares, they specialise in just that stock. overtime thou, edges will change, as market conditions change. eg. new participants competing, like faster algos. mental flexibility is yet another key skillset a longevity trader must learn
 
First off, shorting stocks imo carries more risk and volatility than going long and returns on average are less, so to clarify what I wish to say next, it applies to only going long stocks. Also my discription applies to longer term holds, not day trading.
The problem with 'A' is stocks can often rest up for long periods or go overbought and then rest up for ages, so, trading a small universe of stocks can put you into a prolonged trading drought.
A couple of red hot favorites which you have chosen can often underperform going forward even in a market uptrend, so I'm not in favour of this method.
Regarding 'B' being diversified over a larger universe has benefits, it is better on the nerves.
Also, if you were to choose say 20-40 contenders, what you will discover is while some are getting hit, others are making ground. If you stick to a universe of quality stocks, outperformance will be easier to attain as you will have more money working a longer period than continually jumping in and out on a couple of positions.
 
learn to understand benchmarks a bit as murray said that way you can understand when its a good time to go long or short reflecting on the market as a whole. if youre day trading than etfs can be good instruments. since you are new id focus on 2-3 stocks that you like but just make sure they are good ones that you initially choose. higher priced instruments like facebook have a lot of institutional trading and you should stay away from anything that has a high institutional owner percentage. you can check that on even yahoo finance for any given stock. often times movements in these stocks happen for reasons that are unbeknownst to the public. one example is lets say someone has x amount of outstanding put contracts and they are currently trading at the money and the expiration date is within an hour or two. they will use their capital to keep the stock from dropping to the point where their outstanding options become in the money. thats just one example
 
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