Should you specialize?

In every business there are people who specialize in their respective roles. Human resources has their role, and accounting manages the money. Tech support, maintenance, customer support and of course sales all "specialize" in their roles to help the business thrive. In trading though, many retail investors have only themselves to decipher the opportunity from thousands of publicly traded companies. Today we will examine the need to specialize in one area of the market to better improve your edge. Many retail investors find that specializing in one market gives them an added edge. For instance one may trade only the Dow 30 stocks. It makes sense that one could become very familiar with the pricing, earnings, and progress of only 30 companies. By specializing in the Dow 30 stocks only, one can be better in tune with the opportunities as they present themselves. The negative to this approach is there may not always be opportunity to take advantage of. Can you sit patiently and wait for new trades if your list of 30 doesn't provide any?

Another way one can specialize is to only focus on one market sector. Many of the top analysts on Wall Street only focus on one sector. For example, maybe you only focus on the financial stocks and related ETF's. By doing this you will find that you can be on top of industry changes and better position for major trend changes in the specific sector.

Lastly, many traders will look to only trade one specific stock. Now, in this case we are talking about day traders and very quick day traders at that. We would refer to them as scalpers. Scalpers are those that are interested in small profits repeatedly throughout the day. This style of trading would require a small list of stocks and maybe just one. Of course to do this there are a few things one would consider. First is the liquidity. You would need to pick a stock that has high volume all day every day. Apple would be the most famous example of this. Second you would want to consider the overall volatility. A stock that is highly liquid but has a small daily range will not help you achieve your goals. Again, Apple is a good example of a stock that offers high liquidity, and a daily range that provides plentiful opportunities for the scalper.

The bottom line is that a "jack of all trades" will have a problem being jack the great trader. All traders have a limited list of stocks they use, weather its market or sector specific or not. Trying to keep up will all of the available stocks out there is simply too much for an individual retail trader.