Why the "Magnificent Seven"?

The trading world is immense. For anyone starting out the choice is unbelievable, not only in terms of securities but markets:

• foreign exchange (FX)
• commodities
• stocks
• bonds
• precious metals...etc

And then the trading vehicles: shares, warrants, options, CFD's, futures, swaps.....

So why did I choose the "Seven"?

First of all: liquidity and slippage. I am a retail-level trader, without a trading desk or institution behind me. I must move like a leaf on the wind in and out of positions. There are plenty of mining/small-cap stocks on the ASX with plenty of price opportunities. However, liquidity and slippage cannot be measured beforehand, nor can it be relied upon. Trying to close out or fill your trade in a rising or falling market is very frustrating. 

The "Seven" have ample liquidity with millions of shares trading each day. Slippage is usually not much of concern here either, except when dealing with Exchange Traded Options (ETO's).

Next, trade-ability. With the "Seven" I can trade shares, warrants, options and CFD's so I can tailor the exact vehicle and strategy I want given the prevailing market condition. There are only 30 or so stocks on the ASX (2200 stocks) that meet these conditions.

Options: the ASX option market is not very deep, nor broad. The XJO index option is the most widely traded, followed by the remainder of the "Seven". Although certain option strategies sound good on paper or at highly spruiked seminars (e.g covered calls - although there is a place for them), getting filled and finding appropriate premium and the right risk-reward ratio is another thing entirely.

Finally: focus! Having "only" 7 things to watch day in day out you to focus your efforts by limiting and concentrating analysis on that group. The downside is possible missed opportunities in other areas/markets, although this is mitigated somewhat by the fact that the "Seven" comprise most of the market move!

Will I consider others?

Yes - I have 3 other securities on my watchlist to make a round perfect "10": QBE Insurance (QBE), ANZ Bank (ANZ) and National Australia Bank (NAB). At this stage I effectively paper-trade them.

There are others as well that I look at from time to time, including some international listings included in my "Crash List".
These include gold (in USD), the S&P500 Index/DJIA (i.e Wall Street), the FTSE100 and the AUD/USD FX pair. I will occasionally trade these (mainly via CFD's) and publish my results.

So what are your "Magnificent Seven (or more...or less)" and why?