Should I focus on one market, or scan several markets for opportunities?
In my opinion, the answer to this question largely depends on the strategy used and the time frame you are trading in. For instance, a day trader has likely developed specific technical trading guidelines to trigger entry and exit signals. However, not all markets are created equally…and what works in one, might not work in another. Accordingly, to day trade multiple markets it might be necessary to implement slightly different trading parameters for each symbol traded. In addition, it can often be difficult to follow multiple markets on very short time frames. Unlike position traders, the difference between profit and loss for a day trader can be a few short minutes, or even seconds. On the other hand, a position trader, particularly an option trader, would likely find an advantage in the ability to diversify his speculations among multiple markets. Unlike day traders, position traders have the luxury of having ample reaction time and less hands on monitoring. Therefore, a position trader can likely efficiently monitor a handful of markets simultaneously.
Although it is clear that personality, natural talent, and the ability to focus, play a part in whether a trader can be successful across multiple asset classes; as a rule of thumb, day traders should limit themselves to a couple of markets. Position traders, on the other hand, should consider any liquid commodity market fair game. Obviously, the term liquid is rather ambiguous but the idea is that you should refrain from trading option markets with wide bid ask spreads such as lumber and copper. Likewise, futures markets that see daily volume below about 30,000 should be traded sparingly. In such futures markets, overcoming the spread between the bid and the ask typically won’t be an issue but experiencing true and fair price action will be. Illiquid futures contracts often experience massive price squeezes for little or no fundamental reason.
