In today’s episode, we are going to be discussing whether you should trade one market or many markets when you start your trading business.
A lot of new traders tend to spin their wheels by jumping from market to market, whereas the majority of consistently profitable traders focus on trading one market exceptionally well rather than try to trade whatever’s hot!
If you have been struggling with finding consistency in your trading, this episode has been created for you!
So to trade one market or many markets – that is the question!
Unfortunately there is no cookie-cutter answer to this and it really depends on where you are in your trading journey!
Before digging into this, let’s have a quick look at some of the benefits and drawbacks of trading one market versus trading multiple markets.
Trading One Market
- You become a specialist; the more screentime and experience you get with one market, the more you pick up on different nuances (identifying moods of market participants, key levels that are being defended, etc)
- Prevents overtrading – most traders lose money because they trade way too much!
- Manage risk and exposure more effectively
- Reduces the temptation to trade if there are no quality setups to trade
- Easier to build consistency in execution of process
- You might start to force trades out of boredom if there are no valid trading opportunities present
- If other markets are moving and your market is not, you may feel like you are missing out on potential profit opportunities (FOMO)
- You’re not gonna be cool at parties – but you will be among the most successful
Trading Multiple Markets
- Potential to make more profit when compared to trading a single market
- More trading opportunities on a daily basis
- Less likely to force trades out of boredom or FOMO
- Harder to manage risk effectively across multiple markets due to various tick values and margin requirements
- Mental capital drains a lot faster when tracking multiple markets
- Analysis paralysis can become an obstacle especially if there are setups forming at the same time in multiple markets
- Often leads to tail chasing – you become a jack of all trades and master of none!
Now that we’ve identified some of the benefits and drawbacks of trading a single market versus trading multiple assets, let’s focus on where you should start depending on where you are in your trading journey.
If you are a new trader, then you will want to start with trading one market!
This reason for this is if you haven’t found consistency in your results or if you’re still losing money in one market, then adding more markets to your plate will only drain your account three times as fast.
In order to give yourself the best chance to survive and thrive, you will want to first build consistency in executing your process in one market.
Once you have several months of consistent profitability under your belt in one market, then you could look to add a second market to your daily routine.
When considering which market to add to your arsenal, its a good idea to make it one that is correlated to your primary market.
So if you specialize in trading the S&P500 e-mini futures, you might consider adding a market like the Nasdaq futures (positively correlated) or something like the 30-year US Treasury Bond futures (inversely correlated).
This way your knowledge of your primary market will transfer over via the relationship to the other market!
Most experienced traders have a go-to market to trade but will also trade one or two other markets when there is volatility because movement is opportunity.
If you are an experienced trader with a few years of trading experience and a track record of consistent profitability then you will have a bit more flexibility with trading multiple assets.
You’ll notice seasonality and patterns across different markets and specific months where there is likely to be volatility in a certain asset.
A great example of seasonal patterns is the gold market! Unless there is a major risk-off appetite in the global markets, the gold market is somewhat lacklustre to trade throughout the year except for the Diwali holiday in November.
During this month, the gold market tends to experience more volatility due to increased demand for the precious metal.
Experienced traders know this seasonal pattern so they may also look to trade Gold during this period while still trading their favorite market – best of both worlds!
You might be asking, “If I will be trading one market does that mean that I should ignore all of the other markets?”
The answer to this is NO and here is why:
Trading a market is where you will be risking capital for trades according to your plan, whereas following markets is just keeping a tab on them.
In today’s global markets you have to watch more than what you trade and what you follow depends on your strategy!
How to Choose the Right Market for You
Most people make the mistake of choosing the market that they are first introduced to by their YouTube guru, but in reality, the market that works for you depends on your schedule and your strategy!
The first thing to determine is what times you can commit to trading:
During the London session, forex and metals are the most active markets you might consider trading.
If you can trade during the New York session, then you might consider focusing on equity futures, crude oil futures and/or bond futures.
If you can only trade during the Asia session then you might consider trading forex.
Another consideration is your strategy!
If you are trading a high volatility strategy, then trading gold in Asian session won’t produce nearly the same results as trading gold in London session.
In this scenario, you might consider trading the AUD/JPY pair which is most active during the Asian session.
While there are many different markets that you can choose to trade, we suggest starting with the market that has the most volatility in your planned “trading work schedule” so that you can work on applying patience and proper risk management while taking advantage of daily opportunities!
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- Catch up with our earlier episodes: Mind Over Markets Podcast