Market Selection Is More Important Than Stock Selection
One of the most challenging things for traders to accept is that markets matter more than individual stocks. You may have the most comprehensive stock selection system in the world, but if the market within which you are searching is moribund, then your returns will always be suboptimal.
Consider the chart below of BMNR, a NYSE listed stock, which in 90 minutes went from $57.50 to $130.00. It did so, offering extraordinary liquidity, coupled with leverage, and you can begin to understand how US day and short-term traders generate the returns they do.
I had a quick look at the ASX and found that the stock with the most reasonable volume that generated a decisive single-day move was SLH, which gained 23%. You might think that this would offer some opportunity. However, you then need to consider the daily volume – 1,511,200. At a guess, I would say the stock turned over approximately $3,000,000, about the price of a small bungalow in the Western suburbs of Sydney. Compare this to BMNR, which turned over 37,559,801 shares.
If we make a wild guess and assume an average price of $100.00, then it turned over $3,755,980,100. That is over $3.7 billion in real money, which makes $ AUD3 million look a little ordinary.
Size does matter when it comes to these things.
