In the world of trade discovery there are numerous methods used to identify actionable opportunities. Some elect to trade the same securities over and over and over again. Like mama’s home cooking, they find comfort and familiarity in sticking with what they know. As they become “tuned in” to the stock’s personality they often acquire an edge in forecasting its future. This approach appeals especially to those with an eye toward simplicity. They wake up each morning knowing precisely what securities they will be trading. This frees up additional time to allocate towards trade and risk management.
Standing in contrast to this approach is the idea of continuously canvassing the markets in search of the ideal trading opportunity regardless of where it may lie. These traders hold the quality of a setup in higher esteem than familiarity. Like a roaming nomad in search of food, they travel from sector to sector seeking the best opportunities.
Which method you use likely comes down to your strategy of choice as well as personal preference. Say you’re a charting enthusiast actively placing aggressive directional bets. Odds are you favor the nomad approach and seek out the cleanest patterns regardless of location. It would be somewhat difficult to limit yourself to the same security or group of securities as they may fail to provide sufficient opportunities.
On the other hand, suppose you actively employ a condor or butterfly campaign. Given the nature of both strategies you probably could trade the same securities over and over. It wouldn’t be difficult to use the SPY or RUT on an ongoing basis.
So what are you? A trading nomad or a sucker for mama’s cooking?
For related posts, readers can check out:
Contrasting Schools of Thought
Rotating Sectors
{ 2 comments… read them below or add one }
Hey Tyler,
Great post. I think I would have to be somewhere in the middle. Trading the same handful of securities may get boring, but chasing every single option out there could be hugely overwhelming. I would have to gravitate more towards mama’s cooking though.
Question/thought… many people say/think that during volatile markets like this, sitting on the sidelines is not always a bad thing. Which method do you think might prevent you from seeing the big picture and being able to see that the sidelines are comforting from time to time?
Steve,
don’t think either method would prevent you from seeing the bigger picture. I suspect most traders are keeping an eye on the broader market indices like the SPY regardless of how they find trades. Even if a trader didn’t follow any of the major indices, they would probably notice the number of quality setups diminishing greatly in a choppy/volatile market, which should serve as a warning sign.
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