By Adinah Brown
Do you think that you should play the field a bit, sew your wild oats? Or are you the committed type, wishing to settle down? Maybe you’re the single friend with commitment issues that is sporting a new squeeze every night of the week, or the marry-the-high-school-sweetheart type?
Well, wouldn’t you know it? In trading you can just as naturally choose to be monogamous or polygamous. Though, admittedly, not with the same consequences.
Whilst there are advantages to being polygamous, there are also advantages to being a monogamous trader.
Trading is clearly a very dynamic enterprise. Markets are never static, some can heat up, whilst others drop off. Think about recent trends in world share markets, where every few cycles there is a new emerging market that displaces the more mature market. The financial newspapers are full of them, calling the new trends and putting a fork in the old ones.
Because of this, there is a natural tendency to act polygamously and jump to each new market that shows promise of an uptrend (or downtrend). Money managers beat their competitors by finding the new growth markets and directing their assets towards the areas of growth. One need only think of the not too recent BRIC fascination to remember how fund allocations were geared toward these “growth” markets.
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Even if you are not the dynamic, risk seeking trader, most traders don’t want to get caught trading in a quiet, non-growth market. It is easier to ride a wave than sit in a paddle boat pushing yourself along. And smarter too.
But there is one main reason to not necessarily ditch your paddleboat and stay with your high school sweetheart of a market.
That reason is experience.
The main advantage of monogamous trading is that you have developed a deep understanding of the market that you are trading. In forex, its years spent developing an intimate knowledge of the fundamental aspects of the pair. You know the movements of the markets, the size of the daily variations. The times where volatility is best for trading. When the news comes out. After a while you know this like the back of your hand. You can anticipate because you have immersed yourself in the charts, the news and have the strong unassailable advantage of this experience.
The same holds true for market segments, or stocks. If you have an expertise in a market area, intimate knowledge of the market shares of each company, the market caps, how they work and their comparative strengths and weaknesses, you have something that cannot be duplicated in another segment without a lot of effort.
And the importance is more than simply a deep capability and understanding. The issue with polygamous trading is that it encourages over-analysis, as you make up for a lack of knowledge or feel or understanding of the variables and trade inefficiently. Monogamous trading avoids overtrading, in a sense the opposite of over analysis, where your lack of knowledge lets you make foolish trades. Monogamy helps prevent the temptation to trade by following the next shiny new market and jumping in, effectively controlling risk better.
So, whilst there are many fine reasons to trade like a polygamous trader, it’s always good to remember that sometimes the grass is not always greener. Sometimes it’s best to simply find that one you love and want to spend the rest of your life with.
About the Author:
Adinah Brown is a professional writer who has worked in a wide range of industry settings, including corporate industry, government and non-government organizations. Within many of these positions, Adinah has provided skilled marketing and advertising services and is currently the Content Manager at Leverate.