I'd like to call attention to a very important dynamic in recent markets.  Many experienced traders focused on traditional asset classes, such as rates and currency markets, are struggling with their performance.  The ones I meet with who are making money in those spaces are focused on regions of the world that are less crowded than the US and Europe.  On the other hand, many traders focused on individual stocks--especially active traders--are doing quite well.  What's up with that?

The current stock market is not a stock market; it's a market of stocks.  Some sectors have literally gone nowhere in the last few months, such as financial shares (XLF) and industrials (XLI).  Small and medium cap shares (IWM) have similarly traded in a relatively narrow range for months, as have stocks outside the U.S. (EFA).  On the other hand, we see technology shares (XLK) powering to new highs, along with communications stocks (XLC) and consumer discretionary shares (XLY).

What makes the stock market unique--to use a phrase popular at SMB--is that there is always something "in play":  some sphere of opportunity.  The tricky part is that those areas of opportunity are always changing.  Just as important as how to trade is knowing what to trade.  Because the stock market is so diverse, with so many sectors and companies, developing traders are most likely to succeed by focusing their efforts on current areas of opportunity.  Sometimes it will be with an individual stock or sector.  Sometimes it will be with the entire market.  In an asset class with thousands of things to trade, there's usually something promising that is setting up.

Developing traders need to work on improving their game, but also make sure they're playing the right game.  The lesson of recent markets is that even the best fishermen will struggle if they're casting their lines in the wrong lakes.

More By This Author: