Aspiring Trader? How to Choose the Right Asset

Those who aspire to become Traders are called upon to make some important, even definitive choices that will have a long-term impact on their speculative investment activity. Among these, the choice of the reference class stands out, that is, the market segment in which one operates. Well, it's a choice to be made with the utmost seriousness and rationality. The risk of not being able to go back is quite significant. We'll discuss this in this article, offering some advice on how to choose the reference class. We'll do this by listing the questions that should be asked during the evaluation phase.

Asset class, an important, perhaps definitive choice

Before listing the questions, it's important to clarify the importance of this phase and the choice that will have to be made. Why is it so important to choose the reference class "well"? The reason is not so intuitive. In the collective imagination of the beginner, or the layman of trading, it is possible to change markets more or less at will. In fact, this practice appears almost necessary, especially if results are scarce. Change when things aren't going well: it's possible to do it in real life, so why not in trading? The truth is different. Trading is, in fact, a very complex activity because markets are complex. In essence, the trader, to be profitable and successfully frequent the markets, must specialize. After all, all complex activities require a more or less high degree of specialization. Trading, in fact, makes no difference. Now, specializing in trading means exactly specializing in a particular market, becoming an expert in a particular asset class. It's not possible to be an expert in everything, even if a general understanding is always useful. After all, the specialization process is anything but easy and can take months, if not years. For this reason, it is necessary to start right away, keeping the bar straight from the very beginning. This dynamic reveals the character of irreversibility (certainly partial) of the choice regarding the reference class. In reality, going back is possible, but it costs time and effort. It means having to start from scratch, a prospect that is certainly not exciting and that somehow marks the failure of one's trading activity. Hence, the need not to underestimate this important phase and to pay the utmost attention to putting all possible energy into choosing the reference class. Obviously, each trader is a story in itself, so the choice is left to the individual, who must review a whole series of aspects, factors, and dynamics that concern them exclusively. In essence, they must carry out a small analysis before being able to make the choice.

The questions you must ask yourself to choose the asset class in the right world

The best way to carry out an effective self-analysis is to ask yourself questions directly. Below are the questions you should ask yourself to lay the foundations for a rational, effective, and lasting choice.

How much time do I want to dedicate to trading?

This is the fundamental question, which is worth finding an answer to even outside the decisions about the reference asset class. Deciding in advance the degree of commitment to put into trading activity is essential if you intend to plan it with knowledge of the facts. For the other, the decision about the commitment to put into trading activity also clearly affects the choice of the reference week. The truth is that some assets require a more significant time commitment than others. Let's think, for example, of currencies, which are susceptible to extra-market events that follow one another at a rather fast pace. Other classes allow for a more measured, less frenetic, more reasoned approach. Let's think, for example, of safe-haven assets, which tend to be inelastic in certain market phases. Obviously, to be able to answer this question and, above all, use it for the purpose of choosing a reference class that can prove effective, it is necessary to know well the dynamics that move the various markets.

Which market do I know the most about?

It is necessary to take into account one's background. As already mentioned, each trader is a gamble. It is not only for character issues but also for the knowledge and skills with which they come to the appointment with the market. Backgrounds can be different for a whole series of reasons. For example, some may boast a history of non-speculative investments that have led them to approach this or that market. Similarly, some aspiring traders may have a more or less strong passion for a specific area. It is not necessary to be an expert in a market to answer this question. Even a simple predisposition can serve as material to make a rational choice that can positively affect future trading activity. Obviously, the possibility remains strong that the trader does not have a passion or predisposition. In fact, never mind in this case, there is nothing to worry about: other criteria will guide their choice.

Does volatility scare me?

The issue of volatility is fundamental. Volatility is always a double-edged sword. On the one hand, it produces oscillations, which in turn create profit opportunities. After all, the speculative investor can only profit from price movements in one direction or the other (especially if operating through derivative products). On the other hand, however, volatility poses significant risks that must always be taken into consideration. Volatility, in fact, can be synonymous with unpredictability, with all that follows from the point of view of analysis. In fact, one may find oneself in the unpleasant condition of not being able to understand in which direction one's reference asset is moving. In the worst case, it will produce wrong and consequently unsuccessful analyses. Now, you should understand in advance if you are "psychologically" inclined to effectively manage volatility. If the very concept of volatility causes you anxiety, you should refer to quieter asset classes. If, on the other hand, volatility not only does not scare you but intrigues you, you could consider more turbulent asset classes. In this case, and at first, the issue is essentially psychological.

Am I more skilled in technical analysis or fundamental analysis?

Before addressing this question, a clarification is necessary. Technical analysis and fundamental analysis are both essential. Despite the proponents of technical analysis tending to snub fundamentals, and believing that "prices always discount everything", the two practices are characterized by a complementary relationship. However, there is no doubt that a trader may be more skilled in one analysis or the other. As already mentioned, it is difficult to be an expert in everything. Now, this preference can serve as material to make a rational choice about the reference asset class. The assumption, of course, is that you have already undertaken a path of knowledge of these two disciplines. This step is preparatory to a profitable debut in the market. In any case, some asset classes require a greater share of commitment in fundamental analysis. Others, on the other hand, require a little more effort for technical analysis. Let's take the stock market for example: the more elastic and cyclical securities strongly depend on what happens in the extra-trading environment. Consequently, they engage the trader above all on the fundamental analysis front. It is worth reiterating. Fundamental analysis and technical analysis should be practiced "together". Even in the most specific cases, it is simply foolish to give up one of the two practices.