The least mistakes made by a new futures trader, the better it is for him or her. This is because bad trading habits once acquired is hard to change.
It is better to acquire the correct thinking as early as possible, and join the small group of consistently profitable futures traders. Here are 5 tips that I wished I have before I started trading in futures:
Many people have this mental image of a trader sitting in front of three computer monitors. His eyes are glued to the computer screens, and he is busy executing buying and selling orders rapidly like a machine gun.
The intensity of his actions is enough to make you excited just by watching him. Seriously, when I first started in trading, I made 50-60 trades a day, believing this is the way to trade futures.
Soon, I wiped out one trading account, topped it up with more capital, wiped out another trading account and so on until I wanted to give this up. On reviewing my trading records, I realized that I made very little profits for winning trades and could have done better if I have traded less and rode on a longer term trend.
Reading the Wrong Trading Books
Go to any popular bookstores, and you would seen many shelves of financial books. Perhaps the most common topic is the mental aspect of trading or trading psychology. Those books describe a state of the mind, whereby you disassociate your emotions from the market actions and are able to trade objectively.
Some even got mental visualization exercises to turn you into a profitable trader, whereby you picture money falling like rain all over you. I have read and tried all the exercises described in those books. I can say that those books do not work for me at all. However, I would recommend practical books on building and designing futures trading systems.
Reading Too Much Into News
With the increased connectivity of the internet and the social media, news or rumors in the futures markets spread like wildfire. There are also published official statistics, such as the latest unemployment claims, housing permits, and retail sales. When I first started, I thought maybe I should have spent a few years to first study economics or finance to understand all these data or facts.
As I stumbled through beginner trading, I found out for myself that all these do not always affect the futures prices the way you might think it would behave. For example, in the Japan nuclear crisis, one might think Yen would be abandoned and it would be weakened. Instead, it actually strengthened to higher levels.
Real Futures Trader Are Discretionary
It is said that all potential buying or selling of futures contracts should be planned before the actual transaction itself. However, when a futures trade is triggered, the beginner trader will start to panic when the futures market goes against his or her trade, and exits prematurely.
It is recommended to have some basic rules in place in the form of a proven profitable futures trading system to guide the beginner futures trader. When familiarity with the system’s strengths and weaknesses is developed, discretion can be exercised.
No Stop Loss
This is closely related to discretionary trading. The new futures trader believes that he is always right and the futures market would move in his or her favor in a matter of time. They also believe that they would have the discipline to cut their loss if the worst happened. When your own money is at stake, with emotions running high, it could be difficult to take any action. A prefixed stop loss price would have prevented inaction.
More Tips For The New Futures Trader
To me, trading the futures markets is a life-long enjoyable journey, and there is no need to rush. Trade and continually learn about the ever-changing futures markets, and I am sure you will become a profitable futures trader in no time.