Day traders and investors use various approaches in the financial market. Some of these participants focus on a single strategy while others combine numerous strategies in the market.
At the same time, many day traders focus on one asset class – like stocks or forex – while others trade many of them. Some traders have succeeded trading one asset – such as Tesla shares – while many others trade numerous assets.
What is the best approach?
In our opinion, the best strategy for trading lies somewhere in the middle, which is to focus on just a few stocks/currencies; too many can be scattershot, and we may miss out on fundamental information while relying only on one can more easily lead to losses due to poor diversification.
The tendency, especially for beginners, is to disperse attention over many trades, often even in different assets, getting carried away by the news of the moment and hype.
This approach is called “Jack of all trades, master of none,” and in this article, we are going to analyze it and explain why it is not suitable for a long trading career.
P.S. The complete saying is: “A jack of all trades is a master of none, but oftentimes better than a master of one“.
What does jack of all trades and a master of none mean?
The phrase jack of all trades and a master of none is used widely around the world. It simply refers to a person who does too many things while not being excellent at each of them. It can also apply to companies that provide too many products that have a small market share.
The situation applies in all sectors, including investing, trading, education, medicine, and logistics. For example, in education, a teacher who attempts to teach all subjects will often fail. Similarly, a doctor who attempts to treat all diseases will not be a successful one.
Jack of all trades in day trading and investing
Being a jack of all trades in trading and investing applies in various ways. First, it can involve the assets you are focusing on. The most popular assets in the market are stocks, cryptocurrencies, bonds, and commodities.
In this case, some traders might consider focusing on all these assets. While it is possible to succeed in all this, the reality is that the most successful traders are those who focus on a small portion of the market. Some traders have made a fortune by just trading a single stock or currency pair.
Second, it can be seen in market strategies. Some of the top strategies are:
- Algorithmic trading
A Jack of all trades focus on all these trading strategies. Again, while it is possible to make money when focusing on numerous strategies, the most successful traders are those who focus on one or two strategies.
There are other ways that the concept of jack of all trades is seen in the market. For example, some traders focus on equities from around the world. They will trade Asian stocks, then move to the European session, and end their day with the American session. Trading all these sessions is wrong. Instead, you should focus on a single session.
Further, some investors focus on trading all sectors like financials, technology, energy, materials, and consumer discretionary. Instead of doing this, you should focus on trading one or two sectors.
Why being a jack of all trades is not a good approach
Being a jack of all trades is not always an ideal situation. In most cases, many people who do that do not succeed. There are several reasons why it is not recommended for you to be a jack of all trades.
Lack of specialization
The first reason why being a jack of all trades is not ideal is that it leads to a lack of specialization. This happens because a trader who focuses on so many assets and strategies lacks the required specialization.
For example, if you focus on areas like technology, energy, materials, and utilities, it will take you a longer time to become an expert in it.
This explains why many hedge funds focus on a single strategy. It also explains why companies like Goldman Sachs employ different strategists to track various sectors.
The same applies to when you focus on so many strategies. In most cases, you will be successful when you focus on one strategy and do it well.
Diversification is a good thing to do, especially when you are investing. It can help you generate income across numerous companies and bonds. This explains why successful investors like Warren Buffett and Bill Ackman invest in tens of companies across different sectors.
As an investor, it is always important to have a diversified portfolio of stocks and bonds. However, as a day trader, it can lead to underperformance.
For example, when you trade so many stocks in a day, it means that you will likely not do enough research, which could lead to substantial losses.
Limited mastery and risk of shallow knowledge
Learning and mastering a strategy or an asset can take time. In most periods, it can take more than eight months to master a certain asset class like technology.
The same is true when you are mastering a strategy. In many instances, it can take more than a year to create a strategy and backtest it.
Therefore, focusing on many assets and strategies can lead to substantial losses and even fatigue. As such, we recommend that you focus on a single strategy and put all your energy into it.
When you do this, there is a high probability that you will become a master at it, knowing how to adapt it to any condition and make more money.
Being a jack of all trades is often a sign of overconfidence, which can lead to reckless behavior. It can lead to you taking excess risks, ignoring warning signs, and you fail to adapt to market conditions.
All these can lead to you making substantial losses in the market. You can avoid this by focusing on your areas of strength and working hard to perfect them. For example, you might open ten trades in an hour, which will see you make losses.
Being a jack of all trades can have opportunity cost issues. For example, if you are really good at trading financial stocks, being a jack of all trades can see you focusing on other sectors like tech, bonds, forex, and commodities.
As you do all this, you will be leaving the low-hanging fruit of financials on the table. Therefore, while trading many sectors may seem ideal, the reality is that focusing on one area can be simpler and more profitable.
The other challenge of being a jack of all trades is that it can lead to emotional stress. For one, when you are trading too many assets, there is the risk that some of them will not do well.
This could lead to emotional stress, because you hurt your account. The same is true when you are using too many strategies in the market.
Day trading best practices
You can handle the jack of all trades issue by doing some good practices when day trading. Some of the best approaches to have in mind are:
- Having one or two trading strategies – Don’t aim to master all strategies in the market. Instead, focus on developing and mastering one or two approaches.
- Focus on limited assets – Don’t focus on too many assets. Instead, focus on trading a single asset or asset class.
- Create a good trading strategy – Further, you should create a good trading strategy that works across all market conditions.
- Risk management – Always use risk management strategies to trade financial assets. Some of the top risk management strategies are using a stop-loss, having a take-profit, and position sizing.
- Continuous learning – Always be ready and open to learn new trading strategies and approaches.
Being a jack of all trades is not ideal whether you are a trader or investor. Instead, you should focus on being a specialist in a few strategies and financial assets. By focusing on so many things, you risk diluting your core competence.
External useful resources
If you believe this is the best approach for your career, you should read this Forbes article.