When you start something new the compulsion is to try to learn as much as possible in the shortest amount of time. It's human nature; if we like something we tend to overdo it a bit. Trading is no different. You're excited and eager to learn so you buy lots of trading books, read lots of strategy articles, and try to pick out a few things from each book/article/video, tying them together into your own unique blend of trading genius. It seems like the right thing to do, after all, you're learning things, but it is inefficient, costly and won't necessarily produce favorable results.
Below, you'll find out why you should focus on only learning one strategy when starting out, and how to filter through all the information so you don't waste your time learning things that won't necessarily help you.
- When you're just starting, learn one trading strategy at a time to reduce overloading yourself.
- You might not need to master more than a few strategies to become a successful trader.
- Practice your strategy for at least six months in a demo account to master it before learning another one.
Avoiding Information Overload
When you enter a field, there is so much information that it may seem like you need to know it all. What you should focus on depends on what you want: do you want to just sound smart? Or do you want to make money?
Nearly all successful traders only use a couple of technical analysis indicators to formulate a strategy. Those tools may include a MACD, moving average, Fibonacci retracement tool, or trendlines. If you want to sound smart, then you need to learn everything, but it won't help you make money. Trying to learn everything is information overload. As just discussed, it only takes one or two tools to successfully create a strategy, so why learn about hundreds of different technical analysis tools you will never use?
Why Just One Trading Strategy?
Most successful traders only use one or two strategies. A strategy is a specific set of conditions which outline when you will enter and exit the market. It allows you to objectively see trading opportunities, and also see how trades would have worked out in the past. While past performance isn't always indicative of future performance, it does give you a baseline for assessing whether your strategy is capable of producing a profit.
Since markets range—move sideways—or trend—move up or down for sustained periods—you only need one strategy that works in both, or one strategy for each type of market. There is little need for trying to utilize many strategies. Become good at one and it will serve you much better than trading a whole bunch of strategies poorly.
That's the real reason behind only using one strategy when you start out--by only focusing on one you get very good at it. The only way to get good at something is to do it over and over again in all types of market conditions. One month of practicing a strategy in a demo account will do much more for your trading than trying to absorb as much trading knowledge as you can. The former is helping you actually implement a method that makes money, the latter is just making you book smart. And we all know there is a difference between knowing something and actually being able to do it.
You'll know your strategy inside and out because you have practiced and studied it so much. If you do that you'll avoid a lot of problems many traders face. You won't hesitate to make a trade (no trading anxiety), and you will get in and out at the proper times (no massive losses or being stressed because you don't know what to do).
Become an expert in one method. Until you're able to flawlessly—well, nearly flawlessly because none of us are perfect—execute a strategy for about six months in a row don't even consider learning anything new. Stick to that one strategy.
Being a master at one strategy that makes money is much better than knowing lots of strategies you don't know how to implement and make money with.
Final Word on Mastering One Trading Strategy
When you start your trading journey read the basics on the market you want to trade—these include order types, capital requirements, legal and tax information, position sizing, and market hours. Then find one or two sources that provide strategies on the time frame, market, and time of day you want to trade. Open a demo account and start practicing one of the strategies. Stick with it and don't get distracted by all the other information out there.
No matter what strategy you pick you will probably lose money at first. Trading is a hard business, but that's why you are going to become a master at implementing that one strategy. As you practice you will get better at implementing the strategy and hopefully begin to see some positive results—this could take several months. Keep at it, and when you have multiple months of profitable demo trading under your belt with that strategy, switch to trading real capital. Continue to focus on that one strategy, and don't add any more tools to your arsenal until you're profitable for multiple months in a real money account. Do that and you may find that one strategy is all you need.