Creating A Better Trader: Brand Loyalty – Good or Bad (Better or Best)
Very often individuals become very familiar with a particular collection of securities and are very “loyal” to their chosen SECURITIES. They also may have strong resistance to not involving themselves in a different security. This is common, understandable, and normal. 99.9% of Traders feel (or even end up) that way, and never invest or trade in anything but a few securities.
Additionally, individuals also will remain with their chosen security TYPES (Stocks, Options, Bonds, Bitcoin, Futures, Forex) for various reasons. Familiarity and fear are also the key drivers supporting this behavior as well.
In both these categories (SECURITY and TYPE), it is most often what the trader is first exposed to that becomes the primary factor in their bias.
But is “the way things are” what is best for a trader/investor? Let’s investigate it a little bit.
Brand Loyalty: How Limiting Securities can be a GOOD thing:
Familiarity lends itself to confidence in the security itself. How its price moves, its fundamentals, and other aspects. Trading and investing can be hard for many to do. Just getting started to trust the market can be the toughest thing for you to do. Putting your money at risk only with something you are experienced or familiar with may allow the necessary confidence (or crutch) to finally push that keystroke and get-in-the-game when the proper time comes, which can be a good thing to not only limit overtrading but allow repetitive actions in trading.
Watching limited securities is also much less complex and time-consuming. Less noise, less variability, and preparation necessary. Fewer surprises.
Reducing the number of securities, we monitor also allows us to just (potentially) trade and invest slower. There are fewer trading opportunities and less total overall movement than when looking at many securities. It manages the workload and choices of the trader to what they may be comfortable with.
Over-trading is less likely when the list of securities in your view is restricted. There may be less speculation or uncertainty that fosters speculation.
Familiarity is often (but not always) based on previous experiences. These experiences could be good or bad, but they are still experiences. Humans are creatures of habit, and creating new habits requires new experiences. Therefore, it may take more time you have available to apply the effort necessary to gain new security choices.
Trading and investing in different security TYPES is also a challenge to many without the time and patience to learn the ins and outs of trading Options, Forex, Stocks, Futures, etc. There are likely different skills and experiences necessary to be patiently learned and to feel comfortable about.
It is also much easier to keep tabs on where you are overall if you don’t “lose track” due to the complexity of positions you are in. Many opt for simplicity for this reason alone.
When an investor/trader wants to branch into the different security TYPES, they will often go with what is already familiar to them. For example, trading the SPY may lend itself to more comfort in trading SPY options or ES futures. This is a good avenue for many, as with comfort, they then look to opportunities in leveraged products.
Brand Loyalty: How NOT Limiting securities can be a GOOD thing:
Filtering security choices on what type of investor/trader a person wants to be and accomplish is very important. You want to have confidence in the securities you are using, of course, but you also want to accomplish goals that the security and security types you are using may not be best suited for.
The security you are familiar with and comfortable may be dogs. That is: they don’t move enough, or they move too much, or they aren’t good for the long term, or they are just at a time that they aren’t delivering for you. They may also lack opportunities for entry and target, etc.
Your biases toward the securities you have chosen will likely have you leaning excessively in one direction of price movement or the other, being angry at the security, or just losing interest.
Your choices may be a very poor fit for what you are trying to accomplish.
For comfort and familiarity, you may not be taking advantage of the real opportunities in the markets, or may not have the option or leverage choices of other securities.
People will also set their expectations on what their favorite securities can do; which could be very limiting to the trader and investor.
Each investor trader needs to manage account size. This can only be done effectively if the security matches the need and risk profile. The flexibility of security and security type opens up many many different ways to safely and effectively manage your accounts, account trading, and investment strategies.
Limiting securities often leads to following specific companies too closely. This ignores some of the more predictable and larger markets like bonds, futures, currencies, and ETFs/Indexes. These are also where the larger institutional “footprints” typically are.
Brand Loyalty: Wrap-up:
Generally, restricting choices may stunt your growth as a trader/investor. Focus on the security choice, and not the process, is stunting the opportunities the markets provide.
Fundamentals (which is what forces many to extreme loyalty) is a very poor reason to choose any security when you expect price movement to make you your expected profits. Price movement is where the profit is, not “what” is expected to make the money.
There are many securities coming into zones constantly. They may be better opportunities with less risk and more profit zone.
Limited securities often lead to following specific companies too closely. This ignores some of the more predictable and larger markets like bonds, futures, currencies, and ETFs/Indexes. These are also where the larger institutional “footprints” typically are, and probabilities for success get larger as well.
In next month’s article in this series, I will discuss the concept of “The Next Best Opportunity” to really drive home that security agnosticism and security-type flexibility is a path to incredible freedom and higher probability in the markets.