How to avoid the pitfalls that plague so many futures traders

When trading goes well, you feel great. When trading goes poorly, it feels like a disaster. Most futures traders who are successfully initially end up losing all their gains – and more. To be a successful futures trader, you have to acknowledge this pattern… and then break it.

The following are key ways successful futures traders differ from losing futures traders:

  1. Losing futures traders lack proper preparation and a solid game plan.
    Most losing futures traders are short-term and day futures traders. Their lack of success is due less to the time frame they trade within, and more to their lack of preparation and discipline.

  2. Losing futures traders tend to be under-capitalized.
    There are two reasons for this. The first is that futures traders who take excessive risks while operating with small amounts of capital are more likely to lose their stake more quickly, and also to react emotionally to any loss.

    The second is that all futures traders will experience loss; the greater the capital reserves, the more likely a futures trader can accept small losses and capitalize on winning trades.

  3. Losing futures traders use complex systems or rely on outside recommendations.
    Winning futures traders tend to use simple techniques; techniques that they have developed on their own, from experience, that fit their own style and personality. Successful futures traders understand that the only important outcome is to make money – the complexity of the system used is irrelevant. What matters is what works.
  4. Losing futures traders often rely heavily on computer-generated trading systems.
    Software tools can be extremely useful, but only if you understand the way data is analyzed and how conclusions are reached by the software. Successful futures traders use any tools that are helpful, but they also understand precisely how and why those tools work.
  5. Losing futures traders try to forecast market trends.
    Successful futures traders follow the market in real-time, and create appropriate strategies. By responding to irrational buying or selling with a rational and disciplined strategy, winning futures traders increase their chances of success. Losing futures traders try to predict the market; successful futures traders follow the market wherever it goes.
  6. Losing futures traders focus on winning trades, and maintaining a high percentage of winning to losing trades.
    One losing trade can wipe out a number of winning trades. Successful futures traders focus on minimizing the loss from losing trades, from getting solid returns from winning trades, and maintaining good risk to reward ratios. Successful futures traders track returns and profits, not “wins” and “losses.”
  7. Losing futures traders sometimes execute trades based on emotion alone.
    Winning futures traders accept their emotions, put them aside, and assess current market conditions.
  8. Losing futures traders want to be “right.”
    Successful futures traders see trading as a business, and focus on making money. Losing futures traders enjoy the feeling that a good trade can create; successful futures traders enjoy growth in equity.
  9. Losing futures traders constantly adopt new or “hot” strategies, especially after bad trades.
    Successful futures traders evaluate bad trades, attempt to learn from them, and adjust their current strategies and trading styles accordingly. The most successful futures traders use a consistent system they have learned to rely on and they fully understand.
  10. Successful futures traders assess all aspects of profitability.
    Losing futures traders ignore costs like commissions, systems, or data acquisition. Successful futures traders seek to maximize profits by increasing their gains and reducing their costs. Successful futures traders focus on profit.