Why You Should Have a Favorite Market to Trade

I get many emails from beginning traders asking me what are the best markets to trade. However, today’s lesson is not about that topic exactly, although if you want to know which markets I recommend you start out with, click here. Today’s lesson is about why you should have a favorite market to trade. In other words, one market that you are intimately familiar with and that you trade more often than others.

Having one market that you’re a Jedi Master of, can help you become more of a specialist, and specialists are people who make the most money in life (think surgeons, lawyers, pro athletes etc.) You don’t have to only trade one market, but I recommend focusing on a small handful of markets and having one of those that is your favorite. For example, for me, since I live in Australia, my favorite currency pair is the AUDUSD. I am more familiar with what moves it and how it moves than other pairs since I am of course more familiar with my home country and its inner workings. Someone living in the UK may favor the GBPUSD for example, for obvious reasons.

Let’s discuss some of the other major advantages of having a favorite market to trade:

Becoming a specialist in one market

If I told you that I knew someone who was a master at trading the AUDUSD, would you not assume that person was better at trading the AUDUSD than someone who trades 15 other Forex pairs? I think you would. We all know that practice and repetition are the precursors to being wildly successful at anything, and clearly, someone who is a master of the AUDUSD market has practiced in and focused on that market much more than a trader who trades 15 other Forex pairs.

A brain surgeon doesn’t become a brain surgeon by going to school for 10 different things. He or she goes to medical school and they specialize in brain surgery, if they didn’t, they wouldn’t be brain surgeons. A professional golfer doesn’t become a professional golfer by also trying to become a professional tennis, basketball or football player, do they? To become wildly successful at anything in life, we must dedicate the majority of our time to it, this is just a fact of space, time and human nature.

Why then, do so many people think they can analyze and try to trade 20 different markets successfully?

It only goes to reason that the more you focus on one thing, the better you will be at that thing. This is the primary reason you should have a favorite market. You don’t have to only trade one market, but you should have one market you’re more familiar and closer with than any other. This will also help you to know when that market is in a choppy condition that isn’t worth trading vs. when it’s in a trending condition or other lucrative condition.

Helps avoid over-trading

I’ve said it before and I’ll say it again, the fewer variables you deal with as you analyze the markets, the better off you will be. Focusing on one market and having a favorite market is a natural deterrent against over-trading and over-analyzing.

Most traders lose in the long-run because they trade way too much. Obviously, you’re going to trade a lot less if you’re primarily concerned with one market rather than twenty. Having intimate knowledge of the price action and dynamics of one Forex pair, for example, is going to also help you understand the market as a whole. Since many Forex pairs are correlated, if you know what one pair is doing and you’re very familiar with it, it’s going to help you understand the other markets that you follow, better.

I’ve written articles about why less is more in trading, the sniper approach to trading and what crocodiles can teach us about trading, amongst others, and the idea of having a favorite market as your go-to-market fits in perfectly with the concepts I discuss in those lessons.

Helps fight over-analysis

Having a favorite market also helps you remain more focused and clear-headed. It helps reduce confusion and over-analysis of the market. Trying to analyze many different markets is very likely going to result in you becoming overwhelmed and confused, which usually leads to entering a bad trade and losing money.

My suggestion is to have a favorite market and let that be your foundation. You always start your analysis there each day. Then, if you want to add a handful of other major markets later, you can do so. But, I strongly recommend in the beginning, you start by becoming intimate with one market. I would say there never is really any reason to follow a lot of markets. I personally only follow about ten markets on a regular basis and I have a favorite Forex pair as I said above, also a favorite commodity and a favorite stock index, I suggest you eventually follow suit.

Helps you manage risk properly

Traders who are hung up on analyzing many different Forex currency pairs often end up over-leveraging themselves because they take trades in multiple different pairs at the same time. Especially due to correlations of currency pairs, this is really a dangerous thing to do. Unless you are going to divide up your overall 1R risk among the multiple pairs your trading simultaneously, there is no ‘safe’ way to take multiple positions in multiple FX pairs at the same time.

In this way, having a favorite market, especially one favorite Forex market, can help you contain your risk. If you’re most likely to only trade one pair, you obviously are less likely to over-leverage your account by trading multiple pairs at the same time.

Reduces temptation to trade

Imagine you only look at one pair ever. You don’t have to do this of course, but let’s use a hypothetical scenario for a minute. If you only ever had one chart open and that was the only market you ever looked at, how significantly do you think you would reduce the temptations of the market? As I said above and many times in other articles, traders mostly lose due to trading too frequently, so if you simply limit the number of markets you look at it, you are going to drastically reduce the temptation to over-trade and thus drastically reduce your chances of losing money unnecessarily.

Conclusion

Try focusing on only one Forex market for a few months, pick one you feel the most comfortable with and that you know the most about and really get intimate with it.  Of course, before you can successfully trade any market, you need to learn to read a price chart and the price action patterns that appear. Getting familiar and ‘intimate’ with one market’s price action is really the core objective for any novice trader. Once you master one market you can start adding more.