Generalist vs. Specialist Trading: Narrowing Your Scope

Specialist traders can take a number of approaches, narrowing their focus to specific stocks or times of day to filter out market noise.

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Many people associate a “specialist” with the medical profession, like a doctor with a very specific focus on brain surgery. But you can find specialists in the markets, too.

Think of the path to specialist trading as an inverted pyramid. It’s full of choices at the top, then gets progressively narrower as you choose your specifics. For example, someone might specialize first in a single asset class, like stocks, and then a subsection of that asset class, like an industry sector. The same concept could be applied to foreign exchange and other markets.

The specialist might then choose a methodology, such as technical or fundamental analysis, and may even limit the “setups” they’ll consider (meaning, entry and exit signals), such as chart breakouts, price reversals, or other patterns.

This specialization can even continue to a micro level—choosing a particular time of day or individual stocks. For instance, some people only trade immediately after a market’s opening bell. After the first hour or so, they’re done for the day.  Others stick to trading one or two stocks with which they’ve become intimately familiar.

Specialist Benefits

Whatever the individual specialist’s particulars, this type of trading comes with some benefits and risks. One potential benefit is the ability to eliminate perceived distractions from the pursuit of alpha.

Suppose a hypothetical trader decides to stick with stocks, apply technical analysis, and trade only during the two most “liquid” times of the day—at the open and the close, where a lot of buying and selling activity tends to cluster. And let’s say their primary focus is on day-trading flag patterns on a handful of well-known tech companies.  

By taking such a narrow approach, this specialist can largely ignore what happens in other asset classes (like bonds, currencies, or futures), as well as industry sectors not related to tech.

For this strategy, the trader feels that using technical analysis eliminates the need to follow government filings, economic news, and central bank announcements. Looking for specific patterns during precise times of the day can help filter out most other noise.

Choose Your Own Adventure

The downside to being a specialist is you must build patience and discipline, as opportunities may not present themselves as often as they might for a generalist and since past performance of a security can't predict future performance or success, any particular technical strategy may not prove successful. However, a good specialist knows how to wait for their “pitch” and values the quality of their setups over the quantity.

So which approach—generalist or specialist—fits best with your personality and lends itself toward pursuing your longer-term goals? Whether you’re ready to trade anything that moves or you’re more selective, opportunities abound if you’re prepared to research your choices.

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