How Many Instruments Should You Trade?

How Many Instruments Should You Trade

How Many Instruments Should You Trade

Should traders look for all opportunities or focus on one sure thing

This is a choice many new traders face when they open their accounts and see the vast selection of instruments. Not to mention brokers advertise the many possibilities they offer. It’s always better to have a choice, but making the right one among those available can prove crucial to your trading success.

A majority of traders, although not a crushingly large one, prefer to go where the action is. The opportunity for more pips and movement is widely perceived as an opportunity for more profit. It can be argued that it does indeed provide a better time vs. effort reward and with regular events and trades, the said majority is happy with what they are seeing and doing.

On the other hand, the so-called “specialised” traders point out the pros of trading less frequently on a single, or limited number of instruments. It’s less stressful, as it requires patience and waiting for the necessary conditions to happen. Timing in this case isn’t down to a split second and the window of opportunity can actually be as long as hours, or even days.

Supporters of this trading style also believe that you have an advantage this way, as you focus your attention on a smaller amount of variables and can spot when they align before a heavier rise or fall. Some people even use the phrase that they “can feel” what is going to happen next, with the accumulation of time they spend looking and “reading” a single chart, seeing how it reacts in different circumstances. To put it more plainly, it gives them confidence in a future situation when the same or similar conditions are present.

A simple example of this in terms of logic would be described as having conditions A and B that lead to the result C. Last week the salary data in the U.S. was below expectations and the major indices S&P and Dow Jones fell in the following session in the absence of any other major economic news or data. In this example A is the bad salary data and B is the lack of other news that can move the market. Together they led to C, the markets going down. Next time when there is an announcement the trader would again expect a fall if A and B are present. Later on this might prove to be a successful selling strategy if indeed it happens often enough.

How Many Instruments Should You Trade 2

Practice accounts are quite suitable for making up your mind when it comes to the number of instruments you trade. The initial aim naturally is to get familiar with the layout and functions of the platform and make trades with it. We’ve previously discussed the differences between practice and real accounts, but one other thing that can be added is that you can test yourself on one more variable – what your own capacity for the trading multiple instruments is.

You might find that acting on several fronts just isn’t for you, or that you prefer the opposite – never leaving an opportunity for profits to go to waste. This is the main argument against trading less – missed opportunities. While waiting for the perfect conditions in one instrument a favourable situation might happen elsewhere.

There is no one size fits-all answer to this one, but it is worth looking at the two possibilities and deciding which one suits your trading and personality style before you go for larger volumes. If you are more risk-averse and/or trading with a smaller account, then focusing on one or several instruments might be more reasonable. If you’re more aggressive and want a daily experience and potential rewards for the hours you spend on it – then a wider net can be cast on a more diverse selection of currencies, indexes, stocks and commodities employed.

Next Monday we will be exploring what instrument types you can select according to your knowledge level, personality and profit targets, as well as their general advantages and disadvantages.

Next article out tomorrow at 4:00pm GMT – “Why are German Billionaires Different?”

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