Connors Research Traders Journal (Volume 20): 10 Smart Ways To Improve Your Trading; Part 9 – Go Deep, Not Wide
If you would like to read Chapter One of my new book Buy The Fear, Sell The Greed – 7 Behavioral Quant Strategies for Traders please click here.
This is Part 9 of our 10 Part Series on “Smarter Trading”. Today we’ll focus on the topic of “Go Deep, Not Wide”.
Trading has so many parts to it. And it’s exponential. In stock and index trading alone, you have thousands of securities to trade, multiple time frames, multiple ways to enter, multiple ways to exit, multiple strategies and methodologies to utilize along with the ability to trade the securities directly and through derivatives.
If we look at this combined, it feels daunting because the number of variations on how to trade each day becomes nearly endless.
So what’s the solution? It’s “Go Deep, Not Wide”.
Going deep means specializing. The more you specialize the greater your knowledge will be, and the less the chaos will be.
Just as every industry has specialization, so should your trading. In medicine, there are dozens of fields of specialization. If you have an ear problem, you don’t go to see someone who specializes in endocrinology. An endocrinologist may know something about ear problems but he or she can in no way compete with the knowledge of an ENT specialist. The specialist lives and breathes their specialty. Individuals with general knowledge or unrelated knowledge do not.
You can say the same thing for sports. Every sport has specialties and specialized knowledge. Place future Hall of Fame Quarterback Tom Brady at linebacker and yes, he may understand the position, but he’s no longer a Hall of Famer. He becomes a regular player who doesn’t win Super Bowls. His specialized knowledge is in one thing – being the best quarterback possible and all his time, efforts, and focus has been on that for decades and this been documented by many, many sources (Brady, as are all greats in their field, is OBSESSED). He is not wasting his time practicing catching footballs, or learning how to play defense. He’s 100% focused on his specialty. Brady has gone deep, not wide. And you can say the same thing for anyone who is the best at what they do.
Specialization is a personal choice which requires focus and commitment. It also requires you to know yourself both physically and mentally. Just as a person who’s 6 feet tall and weighs 200 pounds will never become a great jockey no matter how much he desires to do so (there are the physical limitations), someone who needs their mind constantly filled with action will likely become a better short-term trader (or day-trader) versus a great value investor who spends their days, weeks and months holding onto a small handful of positions. One is wired for action. The other is wired for patience. It doesn’t make one a better person than the other – it’s simply how they’re wired.
I’m sure you see the point here – you first start with knowing what you do best and what enjoy doing the most – then things begin to flow from here.
Now, let’s walk through a checklist you can answer to guide you on how to best specialize in trading.
1. Know Your Mind – Ask yourself, “Do I require deep analysis before making a decision or am I able to make great decisions quickly?” The answer will dictate your trading time frame.
2. Know Your Mind (Part Two) – “Can I follow a fixed set of rules (and drown out all the daily noise) in order to trade systematically or do I need (and have a different set of skills) to trade with discretion?”
3. Select Your Market – “What market am I good/great at trading and enjoy studying in order to continue to improve? Stocks, options, futures, ETFs, Volatility, or some other market?”
4. Select Your Market (Part Two) – Within that market you’ll have to go deeper. Much, much deeper.
For example, for options, will you be long premium, short premium, or both? What is your proficiency in the Greeks (you can spend an entire lifetime on this). What about time frames and what instruments will you be trading and when? For example, buying premium a day before earnings is very different than buying six-month options. With SPY you can trade expiration’s 3 times a week. Weekly expiration trading is a science in itself and it takes years to become proficient at it. In fact, many professionals with years of experience won’t touch an option expiring that day – the volatility and gamma alone is too much for them. How about your trade construction? Outright long/short, spreads, ratio spreads, adjusting positions? The list goes on and on.
Let’s go further…
There’s then execution expertise, liquidity expertise, platform expertise, commissions, rebates, exchange rules, new instruments, and more.
This only covers a portion of the knowledge required to become proficient at trading options. And if you think this list is long, spend 10 minutes with me and I’ll give you an even longer list for trading stocks!
Jumping around trading various vehicles, in various time frames, with various trading styles gets you to go wide. Wide is the enemy of proficiency. Deep is the ally of greatness.
Start with the answering the four questions above. Plus, buy the best-selling book The ONE Thing: The Surprisingly Simple Truth Behind Extraordinary Results by Gary Keller. This book has changed many lives for the better because of its message. Also its author Gary Keller, has a very good podcast which is worth listening to because it reinforces the message of today’s trading lesson: Go Deep, Not Wide.
I hope you enjoyed today’s issue of the Connors Research Trading Journal. In our next issue we’ll cover the importance of becoming great at your trading execution. Enjoy your trading.