Make One Market Your Specialty

10/14/2011 1:00 pm EST


Hubert Senters


A common pitfall of many traders is jumping from market to market, and professional trader Hubert Senters tells why becoming a specialist in one market offers the best chances for success.

Very experienced traders are able to jump from one market to another based on where there is movement and volatility, but is that the right thing to do? Our guest today is Hubert Senters to talk about that.

So Hubert, should I focus on one market, get to know it really well and make money there, or should I be able to go to multiple markets based on what is moving that day?

It is a great question, and I think it really depends on where you are in your trading career. 

If you are just starting out, I would focus on one market and no more than three. The reason I say that is, I have never seen the bond traders after the bond market closed jump over to an S&P pit and go "Hey guys, what’s the S&P doing today?" 

Usually you want to become a specialist in one market so that you can hone your skills and build up a base foundation of trading skills. Then once you become good and proficient at that one market, then you can expand. 

If you expand too quickly and you don’t know the fundamentals of how trading works, how to place a stop-loss, what your targets are, stuff like that, all you are going to do is just increase your burn rate. 

So if you go from trading one market to 20 markets, now you have just increased your burn rate by 20 markets, which is not a good thing. It means your cash is not going to last near as long as if you were trading in one market and you just got really, really good at recognizing the personality of that market.

You hear people say, "I can understand the behavior, I know how this market reacts," but is that reality?  I mean, if someone trades just Apple, can they get a very good feel for how Apple reacts to news events and times in the day?

I think you can. I think the more you focus on one market, one equity, or one option…that is why we have specialists and market makers and stuff like that. They are not trading 2000 things all day long; they are making the market in that specific market; so I think you can. 

Part of it might be us just tricking ourselves thinking, "Oh, I am really good at trading crude because I trade crude all the time," but I think experience does have a little bit to do with it.

You get to be very proficient at going, "Oh, crude’s happy today; or it is dead sideways, just leave it alone; or it is trending well."  I think it does play a part of it.

So what is your recommendation for a good market to start, that you could actually start to learn the behaviors? Is it the E-mini or a specific stock; what do you recommend?

I don’t think it really matters what you trade. If you are a trend trader or a countertrend trader, countertrend traders are going to do better in the E-minis, the Dow, S&P, the Nasdaq, the Russell 2000, and crude. 

Trend traders are going to be doing better in gold. I wouldn’t say silver, because silver is very, very volatile.  You could also do currency futures or some agriculture products. 

It is kind of weird the way you are going to find it out. You are going to have to dabble in a few things until you go, "OK, this feels right to me" and then hone in and focus on that. 

In the process of you trying to jump around and figure out what market actually suits your trading style, you are probably going to lose a little bit of money trying to figure that out, but once you find one, what you want to do is ride that horse and just beat it until the finish.

Then maybe increase size as you get better at it?

Yeah, one experiment that I like to do is I try to take a $5000 account and build it up to $25,000; because most of the people that trade eventually blow up, so it is a good skill to have so that if you ever blow up, you can then take a $5000 account and see if you can build it to $25,000. 

Beginning traders usually have a problem where they will get up to a certain cash level, then the more size that they throw on, it starts freaking them out. So you can always just start over and start with a base and then build it back up until you exercise that mental muscle of being really comfortable with making or losing more cash.

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