Specialists Win, Generalists Lose

From the start they had the talent and skills to navigate the market, and they simply aren’t prone to making the same dumb, repeated mistakes the rest of us do.

This is the assumption, or perhaps this is the excuse offered by losing traders. But in reality, successful traders exhibit similar characteristics that can be learned, and they do certain things that anyone can do. One of these is the topic of this essay.

INCORRECT ASSUMPTIONS

The incorrect assumption is that good traders are good at everything. Uptrends and downtrends, big ranges, small ranges, and choppy markets, big gaps or no gaps - that they can flawlessly float from one indicator to the next and from one strategy to the next as the market changes.

None of this is true. In fact the exact opposite is true.

DO ONE THING WELL

The best traders focus on doing one thing well. The best traders identify a trade, or possibly two trades, that work, that jives with their personality, and they execute over and over and over. They specialize in doing one thing very well, and they completely ignore everything else and they resist the temptation change.

It then goes without saying unsuccessful traders are painfully unfocused. They constantly jump from one strategy to the next in hopes of finding a Holy Grail which doesn’t exist. First they trade an MACD crossover system. After a month, they give up and try a Stochastic oscillator system they saw on a message board. After a month of that they try trading Fibs. Then they try Median Lines. Then they try buying dips instead of breakouts. It goes on and on, and after six months they realize if they would have just stuck with their original MACD system, they would have been just fine.

BEST ADVICE

The best advice I can give to a new trader or a struggling trader is to find a trade that works, one that jives with their personality, get good at it, and do it over and over, and do not be tempted to trade other methodologies.

If I was running a hedge fund, and I interviewed you for a trading position, the first question I’d ask is: what’s your trade? What is the single trade that works – although I know it won’t work all the time – that you are comfortable executing? I’d want to know you’re not one of those traders who constantly jumps from set up to set up desperately hoping to find something.

LIKE NO OTHER ENDEAVOR

Unlike many other endeavors, trading allows you to do this. If you were a golfer, you’d have to be good at driving and putting and a short game. You’d have to be good playing in the rain or when it’s windy.

If you play chess, you have to be good at the open, the middle game, the end game and various scenarios based on what pieces are on the board. 

But trading doesn’t force you to be good at many things. As hard as trading is, trading allows you to identify certain conditions that you’re good at navigating and then permits you to only trade when those conditions are present. You can literally suck at 99% of what’s out there and still make a living trading if you get good at one or two specific set ups.

With this realization, trading isn’t so intimidating any more. You don’t have to be good at a lot of things, and you don’t have to understand much either. In your little corner of the world you can identify a simple set up that works, and then execute it over and over.

ANECDOTAL OBSERVATIONS

I’ve been running LeavittBrothers.com for almost 11 years, and I have a pretty good feel for who makes money and who doesn’t. I could pull up charts posted by successful traders and compare them to charts from three or four or five years ago, and they’d be identical - same time frame, same duration, same indicators, same parameters on the indicators, same boring stuff.  But that’s why they’re successful. They do the same thing over and over. This doesn’t mean what they do always works. In a given 12 month period what they do may only work eight or nine months, but these traders have learned that it’s best to go back and forth between trading aggressively and sitting on the sidelines than it is to constantly change strategy when the one they’re using stops working.

WRAP UP

  • After meeting many successful and unsuccessful traders, this is the most obvious and glaring difference.
  • Successful traders specialize in being great at one thing.
  • Unsuccessful traders constantly jump from one strategy to the next.
  • You need to take complete inventory of your skills, your talents, your temperament and study different trading styles and pick something that works, something that jives with your personality, something you can execute and commit to becoming good at that, and completely ignore everything else.

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Related Reading:

What Traders Need to Know: Best Execution

Trading Mentors Are Easy to Find

Secrets All Successful Investors Have in Common

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