The benefits of Sector Trading: One thing we are constantly amazed by is the number of traders who insist on sticking to trading stocks that are all in the same sector. In other words, people who trade only Internet stocks or only tech stocks. The main reason that people do it is because the tech and Internet stocks are generally the most volatile stocks, which enables traders to make a larger number of points of profit in a stock in a quicker time. However, one major problem with this is that there are many, many days when both the Internet and tech stocks are very flat, therefore making them difficult to profit with. This is why we often trade a very reliable concept referred to as “sector trading.”
Many novice traders may not be aware, but there is always at least one or two sectors of the market that is showing strength on any individual day. This is true even on days when the Dow is down several hundred points. This occurs due to the constant shift of institutional money from one sector to another. If money is rotated out of the tech and Internet stocks, it needs to go somewhere else—hence sector trading occurs. Some days there may be strength in the oil stocks, other days it may be the pharmaceutical stocks, and yet other days it is the tech stocks. But the point is that there is always going to be one or two sectors that are better to trade than others.
The major benefit to sector trading is that your overall risk in the market is lower than if you were just trading stocks at random in various sectors. By being in the strongest sectors, you are going with the overall trend, and not fighting it. And when going with the trend, you are more likely to make a profit because you are doing what the institutional traders are doing. Go where the “big money” goes.
With sector trading, we have found that your average gains will also be larger because you have buying or selling momentum on your side. Once buying or selling starts in a particular sector, there is also typically a three-day period in which that will continue. So, we often will find ourselves trading in the same sectors for several days in a row.
This only begins to scratch the surface on sector trading, but we trade all different sectors from Retail to Oils to Semiconductors.
For those that don't know, I will be giving a free seminar on the benefits of sector trading at the Intl. Online Trading Expo. in Anaheim, CA on August 19 (www.onlinetradingexpo.com). We also regularly teach our clients sector trading in our Online Trading Center. I will continue to elaborate and talk more about this subject.
Thanks,
Deron Wagner
General Partner
intradayinvestments.com |
