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Specialize in trading only one instrument

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  #1 (permalink)
Cuernavaca, Mexico
 
 
Posts: 10 since Feb 2021
Thanks: 4 given, 4 received

Hi everyone! I would like to know if peofessional traders specialize in trading only one instrument or if they trade more than one. What is the wisest thing to do from a daytrading perspective. Cheers!

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  #2 (permalink)
Legendary Systematic Algo Trader
Somewhere, Delaware, USA
 
Experience: Intermediate
Platform: TradeStation, MultiCharts
Broker: TS Securities, OANDA
Trading: Energies
 
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TheTradingDojoMX View Post
Hi everyone! I would like to know if peofessional traders specialize in trading only one instrument or if they trade more than one. What is the wisest thing to do from a daytrading perspective. Cheers!

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Personally (and professionally), I have become a believer in diversification. I am primarily a swing trader and work in the intermediate timeframes, with some longer and shorter term stuff thrown in for fun. Diversification allows me to smooth my equity curve (overall P&L if you will) and more easily absorb drawdowns. I try to build a portfolio of systems that have low correlation to each other.

As a day trader, I think the perspective changes. There are a few schools of thought (and I look forward to other's perspectives): specialize and get really good in one market/instrument. Or....diversify and get good enough in a basket of non-correlated instruments you can work with. I have one system I am developing that is a day trading system that only works on one instrument. It has a lot of potential and I may have an edge. If I were day trading this and it is my cash cow system, but at some point the market will change and I'm flat or bleeding out. I need to diversify to stay alive.

I know there are people who like to just focus on the index futures and that is it. There is high correlation there, typically, so it does not meet my criteria of diversification. Day trading multiple non-correlated instruments would be the way to go, I think. One of the systems I am building is for stocks (not my strong area for short-term trading), which meets the diversification criteria if I am trading across different market sectors.

For those traders who work at a firm, there may be a focus only on one market (energies) or instrument (Crude Light). I am sure that is dictated by their bosses and it may be driven as much by hedging as it may be for profit (think of an airline hedging crude). For those trading for a living, then things open up a bit and I think diversification can be important. I keep hearing 'diversification' from the pros.

I hope this helps, even if I rambled for a while!

~vmodus

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  #3 (permalink)
Legendary Market Wizard
Portland, OR
 
Experience: None
 
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Posts: 1,962 since Mar 2011
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Everything I've traded this year so far in order of profitability.
My highest performer is 2x greater than my biggest loser.
Losers start at /M6EH21

/6JH21 Japanese Yen Futures,Mar-2021,ETH (prev. /6JH1)
/MYMH21 Micro E-mini Dow, Mar-21 (prev. /MYMH1)
/ESH21 E-mini S&P 500 Index Futures,Mar-2021,ETH (prev. /ESH1)
/HGH21 Copper Futures,Mar-2021, ETH (prev. /HGH1)
/M2KH21 Micro E-mini Russell 2000, Mar-21 (prev. /M2KH1)
/RTYH21 E-mini Russell 2000 Index Futures, Mar-21 (prev. /RTYH1)
/CLH21 Light Sweet Crude Oil Futures,Mar-2021,ETH (prev. /CLH1)
/E7H21 E-mini Euro FX Futures,Mar-2021,ETH (prev. /E7H1)
/MGCG21 E-micro Gold Futures,Feb-2021,ETH (prev. /MGCG1)
/XKH21 E-Mini Soybeans Futures,Mar-2021, ETH (prev. /XKH1)
/QMH21 NYMEX miNY Light Sweet Crude Oil Futures,Mar-2021,ETH (prev. /QMH1)
/ZSH21 Soybean Futures,Mar-2021,ETH (prev. /ZSH1)
/6AH21 Australian Dollar Futures,Mar-2021,ETH (prev. /6AH1)
/6CH21 Canadian Dollar Futures,Mar-2021,ETH (prev. /6CH1)
/QGG21 miNY Natural Gas Futures,Feb-2021, ETH (prev. /QGG1)
/MNQH21 Micro E-mini Nasdaq-100, Mar-21 (prev. /MNQH1)
/XCH21 E-Mini Corn Futures,Mar-2021, ETH (prev. /XCH1)
/M6EH21 E-Micro EUR/USD Future,Mar-2021,ETH (prev. /M6EH1)
/ZCH21 Corn Futures,Mar-2021,ETH (prev. /ZCH1)
/M6BH21 E-Micro GBP/USD Future,Mar-2021,ETH (prev. /M6BH1)
/MGCJ21 E-micro Gold Futures,Apr-2021,ETH (prev. /MGCJ1)
/SILH21 1000-oz Silver Futures,Mar-2021, ETH (prev. /SILH1)
/J7H21 E-mini Japanese Yen Futures,Mar-2021,ETH (prev. /J7H1)
/MESH21 Micro E-mini S&P 500, Mar-21 (prev. /MESH1)
/6EH21 Euro FX Futures,Mar-2021,ETH (prev. /6EH1)

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  #4 (permalink)
Miami, Fl
 
Experience: Advanced
Platform: Tradestation, Jigsaw
Trading: Futures
 
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Posts: 7 since Feb 2012
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I believe successful professionals trade only one or very few instruments.
I day trade (or scalp, depending of your definition) the mini Dow and the US Treasury 30y. I also swing trade the mini S&P500 and sometimes the US Treasury 30y.
That is it!

I used to day and swing trade options, futures and also stocks and ETFs.. At the time I knew all about technical analysis. I used to trade earnings and all kind of events.

At the end, being specialized in one or two products was the key for me.
Hope this helps.

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  #5 (permalink)
Legendary Market Wizard
Ilsede, Germany
 
Experience: Advanced
Platform: NinjaTrader 8
Broker: Rithmic / CQG / Ninja Trader Brokerage
Trading: NQ
 
Daytrader999's Avatar
 
Posts: 1,324 since Sep 2011
Thanks: 1,436 given, 1,881 received

I used to trade many different instruments like ES, YM, NQ, RTY, CL, GC, SI, HG, NG, ZS, UB etc., but as my trading grew 'more serious' over the years, I found out that I can't focus on more than max. two instruments simultaneously.

I experienced as well that it's essential to find THE market which fits best to your own personality and psyche.

And over time, you get to know the 'true character' of this particular market and become REALLY good at it.

So I stick with NQ, and from my own experience, focussing on only one instrument was the key and a game changer for me on my way to consistency.

"If you don't design your own life plan, chances are you'll fall into someone else's plan. And guess what they have planned for you? Not much." - Jim Rohn
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  #6 (permalink)
Cuernavaca, Mexico
 
 
Posts: 10 since Feb 2021
Thanks: 4 given, 4 received


vmodus View Post
Personally (and professionally), I have become a believer in diversification. I am primarily a swing trader and work in the intermediate timeframes, with some longer and shorter term stuff thrown in for fun. Diversification allows me to smooth my equity curve (overall P&L if you will) and more easily absorb drawdowns. I try to build a portfolio of systems that have low correlation to each other.

As a day trader, I think the perspective changes. There are a few schools of thought (and I look forward to other's perspectives): specialize and get really good in one market/instrument. Or....diversify and get good enough in a basket of non-correlated instruments you can work with. I have one system I am developing that is a day trading system that only works on one instrument. It has a lot of potential and I may have an edge. If I were day trading this and it is my cash cow system, but at some point the market will change and I'm flat or bleeding out. I need to diversify to stay alive.

I know there are people who like to just focus on the index futures and that is it. There is high correlation there, typically, so it does not meet my criteria of diversification. Day trading multiple non-correlated instruments would be the way to go, I think. One of the systems I am building is for stocks (not my strong area for short-term trading), which meets the diversification criteria if I am trading across different market sectors.

For those traders who work at a firm, there may be a focus only on one market (energies) or instrument (Crude Light). I am sure that is dictated by their bosses and it may be driven as much by hedging as it may be for profit (think of an airline hedging crude). For those trading for a living, then things open up a bit and I think diversification can be important. I keep hearing 'diversification' from the pros.

I hope this helps, even if I rambled for a while!

Thank you for taking the time to answer my question. I completely understand where you're coming from. One of the drawbacks of diversification, IMO, is that you tend to lose focus. I think it'd be better to be hyperfocused in just one thing (from a daytrader perspective). Due to the fact that you are swing trading, it makes perfect sense to diversify. Cheers!

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  #7 (permalink)
Cuernavaca, Mexico
 
 
Posts: 10 since Feb 2021
Thanks: 4 given, 4 received


Daytrader999 View Post
I used to trade many different instruments like ES, YM, NQ, RTY, CL, GC, SI, HG, NG, ZS, UB etc., but as my trading grew 'more serious' over the years, I found out that I can't focus on more than max. two instruments simultaneously.

I experienced as well that it's essential to find THE market which fits best to your own personality and psyche.

And over time, you get to know the 'true character' of this particular market and become REALLY good at it.

So I stick with NQ, and from my own experience, focussing on only one instrument was the key and a game changer for me on my way to consistency.

Hi there! I concur. I think that being hyperfocused on just one market tends to lead to consistent profitability. I trade NQ and MNQ as well.

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  #8 (permalink)
Cuernavaca, Mexico
 
 
Posts: 10 since Feb 2021
Thanks: 4 given, 4 received


Fonz View Post
I believe successful professionals trade only one or very few instruments.
I day trade (or scalp, depending of your definition) the mini Dow and the US Treasury 30y. I also swing trade the mini S&P500 and sometimes the US Treasury 30y.
That is it!

I used to day and swing trade options, futures and also stocks and ETFs.. At the time I knew all about technical analysis. I used to trade earnings and all kind of events.

At the end, being specialized in one or two products was the key for me.
Hope this helps.

Hey! Thanks! I sure helps a lot! I've heard that NYSE Specialists and Nasdaq MM trade just one stock (I don't know if that's true though).

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  #9 (permalink)
Cuernavaca, Mexico
 
 
Posts: 10 since Feb 2021
Thanks: 4 given, 4 received


Massive l View Post
Everything I've traded this year so far in order of profitability.
My highest performer is 2x greater than my biggest loser.
Losers start at /M6EH21

/6JH21 Japanese Yen Futures,Mar-2021,ETH (prev. /6JH1)
/MYMH21 Micro E-mini Dow, Mar-21 (prev. /MYMH1)
/ESH21 E-mini S&P 500 Index Futures,Mar-2021,ETH (prev. /ESH1)
/HGH21 Copper Futures,Mar-2021, ETH (prev. /HGH1)
/M2KH21 Micro E-mini Russell 2000, Mar-21 (prev. /M2KH1)
/RTYH21 E-mini Russell 2000 Index Futures, Mar-21 (prev. /RTYH1)
/CLH21 Light Sweet Crude Oil Futures,Mar-2021,ETH (prev. /CLH1)
/E7H21 E-mini Euro FX Futures,Mar-2021,ETH (prev. /E7H1)
/MGCG21 E-micro Gold Futures,Feb-2021,ETH (prev. /MGCG1)
/XKH21 E-Mini Soybeans Futures,Mar-2021, ETH (prev. /XKH1)
/QMH21 NYMEX miNY Light Sweet Crude Oil Futures,Mar-2021,ETH (prev. /QMH1)
/ZSH21 Soybean Futures,Mar-2021,ETH (prev. /ZSH1)
/6AH21 Australian Dollar Futures,Mar-2021,ETH (prev. /6AH1)
/6CH21 Canadian Dollar Futures,Mar-2021,ETH (prev. /6CH1)
/QGG21 miNY Natural Gas Futures,Feb-2021, ETH (prev. /QGG1)
/MNQH21 Micro E-mini Nasdaq-100, Mar-21 (prev. /MNQH1)
/XCH21 E-Mini Corn Futures,Mar-2021, ETH (prev. /XCH1)
/M6EH21 E-Micro EUR/USD Future,Mar-2021,ETH (prev. /M6EH1)
/ZCH21 Corn Futures,Mar-2021,ETH (prev. /ZCH1)
/M6BH21 E-Micro GBP/USD Future,Mar-2021,ETH (prev. /M6BH1)
/MGCJ21 E-micro Gold Futures,Apr-2021,ETH (prev. /MGCJ1)
/SILH21 1000-oz Silver Futures,Mar-2021, ETH (prev. /SILH1)
/J7H21 E-mini Japanese Yen Futures,Mar-2021,ETH (prev. /J7H1)
/MESH21 Micro E-mini S&P 500, Mar-21 (prev. /MESH1)
/6EH21 Euro FX Futures,Mar-2021,ETH (prev. /6EH1)

That's definitely quite a long list!
I'm glad you find diversification profitable.

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  #10 (permalink)
Legendary Market Wizard
Portland, OR
 
Experience: None
 
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Posts: 1,962 since Mar 2011
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TheTradingDojoMX View Post
That's definitely quite a long list!
I'm glad you find diversification profitable.

I think many years ago when there wasn't as much data available to write scripts and algos you had to specialize. You would never have to time to track down opportunities in other markets. Now we can run scripts across multiple markets and find opportunities within seconds.

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  #11 (permalink)
Legendary Systematic Algo Trader
Somewhere, Delaware, USA
 
Experience: Intermediate
Platform: TradeStation, MultiCharts
Broker: TS Securities, OANDA
Trading: Energies
 
vmodus's Avatar
 
Posts: 997 since Feb 2017
Thanks: 2,134 given, 2,024 received


TheTradingDojoMX View Post
Thank you for taking the time to answer my question. I completely understand where you're coming from. One of the drawbacks of diversification, IMO, is that you tend to lose focus. I think it'd be better to be hyperfocused in just one thing (from a daytrader perspective). Due to the fact that you are swing trading, it makes perfect sense to diversify. Cheers!

Actually, the trick for me is automation. Like @Daytrader999 , I would probably only be able to focus on a few instruments if I were trading manually.

~vmodus

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  #12 (permalink)
Munich, Germany
 
Experience: Advanced
Platform: Sierra Chart
Broker: Interactive Brokers
Trading: liquid products
 
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Posts: 425 since Jul 2016
Thanks: 836 given, 1,486 received

One important consideration that I haven't seen mentioned yet is timeframes. If you're trading very short, intraday time-frames, then you will need to focus on just a few markets. If you're trading off a 5-minute chart, for example, then every single one of those five-minute bars has some relevance to your entries, exits, and position risk-management. Even if you are fully automated, you need to monitor your systems and trades in real time.

As has also been mentioned, every market has its own behavioral quirks, and you need an intimate knowledge of these characteristics in order to be consistent, especially on an intra-day basis.

But if you're a discretionary, big-picture macro trader in the style of, say Stan Druckenmiller, then you will trade every product available, only with much less frequency, and not at the same time. You'll be focused on daily, weekly, and monthly charts and can take a bit more time to formulate strategies and manage positions.

In the end it comes down to an effective allocation of your limited analytical resources. If you stretch these out too thin, your risk of missing something, or making a mistake, goes up exponentially, and ultimately this type of carelessness can quickly wreck even an otherwise effective strategy.

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