Brokers nowadays are no longer specializing on certain instruments, meaning a broker can offer currencies, indices, stocks, futures, cryptocurrencies and more. With this wide variety of instruments it has become very hard for day traders to choose which asset to trade. I will share with you the process I use to select the right assets to focus on in a given period.
It’s all about understanding
It has become a norm in the day trading community to solely rely on technical analysis and ignoring all other important tools likes sentiment and fundamentals. This has led to traders getting into assets which they don’t even understand how they behave and most importantly what moves that asset. It is very hard to make money trading an instrument that you don’t even know, it’s like buying shares of a company you know nothing about.
When traders choose assets to trade they should focus on what they understand. If your knowledge is limited to currencies then trade currencies. Don’t choose indices because you see a beautiful setup, there is more to trading than just patterns.
Simplicity
One you know which asset class you understand then you have to apply the second filter; simplicity. Let’s say you trade currencies; you can’t be trading all 100 pairs at once; you have to choose some pairs that you’ll stick with, pairs that will build your portfolio. How do you choose such pairs? This is where market structures come in. Choose markets which are made of simple market structures. Structure that are tradable.
Looking at the example above you can see that the EURUSD chart is better than XAUUSD chart. This is simple because the former is made of patterns that are clearly visible; everyone can see that it’s a downtrend. The waves that make the trend are very clear which means it will be very simple to make trading decisions on such an asset.
Choose quality over quantity
One other thing that traders get wrong is quantity over quality. Traders think that the more they trade the more money they’ll make which wrong. One trader can make only 3 trades a month and be far profitable than a trader who have made 92 trades. It’s not about how many trades you take, it’s all about quality. Make sure that you focus on making high quality decisions. It you not sure about a trade then don’t take it. If a trade doesn’t meet your strategy requirements then don’t take it.
