Are niche markets really easier to trade ?

Discussion in 'Trading' started by Robertwiz, Jul 24, 2012.

  1. Hello,

    I often hear the following theory written by some traders:

    If you are a small trader, then focus on small niche markets that are not traded by the big boys. For instance:

    1. Trade small cap stocks, rather then big stocks

    2. trade corn or Australian dollar futures rather then the S and P Emini or the Euro futures

    Supposedly the fact that the other players are less sophisticated should give you an edge.

    Here the pros and cons of the idea: Trade niche markets instead of big boy markets:


    Weaker competition

    Some niche markets trend better


    niche markets like corn have worse liquidity and are actually more subject to price shocks then the S and P emini

    If you learn to ride with the money flow of the big boys (rather then compete with them), it can actually be good money.

    So from anyone who has thought about the issue:

    Are niche markets like corn and the Australian dollar really easier to trade then "what the big boys trade"?

  2. 007Arb


    I've always believed all traders need to find their own niche market. A market you know inside and out. I would hate to think where I would be had I not discovered open end junk bond funds in 1991 and their amazing persistency of trend. While I made more money in the 80s and 90s trading equity mutual funds ala tech, telecom, and small cap growth, nearly all I've made in the past decade has come from junk bond funds. And even though my percentage returns aren't like in the 90s, because of the compound effect of those percentage returns, my actual dollar returns have been greater this decade.

    Were I younger and looking for a niche market now, it would probably be somewhere in the small cap biotech sector.
  3. TraDaToR


    Corn is nothing like a small niche market. It has tremendous liquidity especially in the calendar spreads. It's really efficient.
  4. wrbtrader


    The markets you've named that you thought are not traded by the big boys...

    They are traded by the big boys and you should spend some time reading more about some of the big players in Corn and Australian dollar. Anyways, regardless to your definition of how many big boys, liquidity or volatility are needed to qualify a market as no longer a niche market...

    You should backtest your trade method on any markets you "believe" are niche markets to determine which market you're method performs the best. Thus, whichever performs the best...that's the market you trade regardless how many big boys are trading it.

    Simply, if your trade method backtest as profitable on a market that's traded by the big boys versus backtest as losing on a niche market...

    Why would you ignore your backtest and trade something you consider to be a niche market although not consider to be a niche market by others ???

    Let your trade method test results decide which markets to trade...not your opinions, perspective or bias.
  5. Trading is such a vast field that you first need to define what you mean by trading.

    If you want to actively day trade day after day, you want to trade a market that is reasonably volatile and liquid. You`re not competing against anyone per se, you are simply entering and exiting as the market allows you to do so. In thinner market, you may be competing for liquidity with other skilled players at certain points in time, but it is rarely an issue if you trade something that is liquid.

    In the past, I`ve made very impressive returns catching trends in small cap stocks that I followed. These were always interday trades, trailing a stop loss outside the daily ATR. I never used charts in this period. In one memorable trade I captured a breakout in a small oil stock who`s company had found a large gas pocket. It appreciated 100% on the news that hit the wire just into the close.

    I bought next day at the open, leveraged to the hilt and managed to ride a 400% move or so. Money I proceeded to lose on day trading.

  6. I pulled a chart from OSE using close prices. I believe I never onced watched the chart of the stock back then. In fact, I think this is the first time. :)