Futures Trading and Discipline

Futures Trading and Discipline

Learn to practice self-discipline for successful trading in the futures markets.

Having an unemotional attitude and a deliberate trading system are the hallmarks of a successful trader.

Speculative trading in the futures markets can be highly emotional and yet, a stressful venture. That the majority of small investors in the futures markets are losers is no surprise. The psychological battering that comes from trading can turn even the most seasoned pro into an emotional basket case. Discipline is a necessary trait to weather the storms.

In order to successfully trade one must certainly obtain the necessary knowledge of the markets. Information such as fundamental factors that drive prices and/or technical tools based on price charts and price patterns are needed to predict price movement. But even this is not enough.

A trader should have a trading system. A trading system should provide a general set of rules that the trader can refer and adhere to when emotional madness might otherwise prevail. As a trader begins to discover individual weaknesses and trading flaws, more specific rules can be introduced.

A trading plan is a must. This plan might specify such things as: which markets to follow, number of contracts to trade at any one time, profit goals per week, month, or year, and maximum loss allowed per trade. Without these rules emotions such as greed may take over when, for instance, a position is profitable. Greed could turn to despair when prices turn around and the trader refuses to exit the market, in hopes that prices will become favorable again. A good trading plan would have dictated an appropriate exit from the market to protect profits.

One of the most common mistakes of futures speculators is having no limit on losses. In a losing situation it is easy to let losses accumulate in hopes that prices will turn around. A losing position should be exited quickly. A losing position doesn’t mean the speculator is a bad trader, simply that the timing was wrong. The trader should re-evaluate the market to assess the proper timing.

Another common mistake is to take profits too early. There is a tendency for the novice trader to take profits while the market continues upward without him. Market movement should determine profits. A brokered exit order that lags slightly behind current prices will protect profits.

A good trader is a disciplined trader. Having an unemotional attitude and a deliberate trading system are the hallmarks of a successful trader.


ABOUT THE AUTHOR
Brett Krkosska provides how-to advice on small business and home-based work issues. He is the founder of HomeBizTools and the publisher of Straight Talk, a syndicated column that offers a unique perspective on today’s business issues.



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