Top 10 Mistakes Traders Make and How To Avoid Them?
Achieving success in futures trading requires avoiding numerouspitfalls as much, or more, than it does seeking out andexecuting winning trades. In fact, most professional traderswill tell you that it's not any specific trading methodologiesthat make traders successful, but instead it's the overall rulesto which those traders strictly adhere that keep them "in the game" long enough to achieve success.
Following are 10 of the more prevalent mistakes I believetraders make in futures trading.
This list is in no particular order of importance.
1. Failure to have a trading plan in place before a trade isexecuted.
A trader with no specific plan of action in place upon entryinto a futures trade does not know, among other things, when orwhere he or she will exit the trade, or about how much money maybe made or lost. Traders with no pre-determined trading plan areflying by the seat of their pants, and that's usually a recipefor a "crash and burn."
2. Inadequate trading assets or improper money management.
It does not take a fortune to trade futures markets withsuccess. Traders with less than $5,000 in their trading accountscan and do trade futures successfully. And, traders with $50,000or more in their trading accounts can and do lose it all in aheartbeat. Part of trading success boils down to proper moneymanagement and not gunning for those highly risky "home-run"type trades that involve too much trading capital at one time.
3. Expectations that are too high, too soon.
Beginning futures traders that expect to quit their "day job"and make a good living trading futures in their first few yearsof trading are usually disappointed. You don't become asuccessful doctor or lawyer or business owner in the firstcouple years of the practice. It takes hard work andperseverance to achieve success in any field of endeavor -- andtrading futures is no different. Futures trading is not theeasy, "get-rich-quick" scheme that a few unsavory charactersmake it out to be.
4. Failure to use protective stops.
Using protective buy stops or sell stops upon entering a tradeprovide a trader with a good idea of about how much money he orshe is risking on that particular trade, should it turn out tobe a loser. Protective stops are a good money-management tool,but are not perfect. There are no perfect money-management toolsin futures trading.
5. Lack of "patience" and "discipline."
While these two virtues are over-worked and very often mentionedwhen determining what unsuccessful traders lack, not many willargue with their merits. Indeed. Don't trade just for the sakeof trading or just because you haven't traded for a while. Letthose very good trading "set-ups" come to you, and then act uponthem in a prudent way. The market will do what the market wantsto do -- and nobody can force the market's hand.
6. Trading against the trend--or trying to pick tops and bottomsin markets.
It's human nature to want to buy low and sell high (or sell highand buy low for short-side traders). Unfortunately, that's not atall a proven means of making profits in futures trading. Toppickers and bottom-pickers usually are trading against thetrend, which is a major mistake.
7. Letting losing positions ride too long.
Most successful traders will not sit on a losing position verylong at all. They'll set a tight protective stop, and if it'shit they'll take their losses (usually minimal) and then move onto the next potential trading set up. Traders who sit on a losingtrade, "hoping" that the market will soon turn around in theirfavor, are usually doomed.
8. "Over-trading."
Trading too many markets at one time is a mistake -- especiallyif you are racking up losses. If trading losses are piling up,it's time to cut back on trading, even though there is thetemptation to make more trades to recover the recently losttrading assets. It takes keen focus and concentration to be asuccessful futures trader. Having "too many irons in the fire"at one time is a mistake.
9. Failure to accept complete responsibility for your ownactions.
When you have a losing trade or are in a losing streak, don'tblame your broker or someone else. You are the one who isresponsible for your own success or failure in trading. You makethe trading decisions. If you feel you are not in firm control ofyour own trading, then why do you feel that way? You should makeimmediate changes that put you in firm control of your owntrading destiny.
10. Not getting a bigger-picture perspective on a market.
One can look at a daily bar chart and get a shorter-termperspective on a market trend. But a look at the longer-termweekly or monthly chart for that same market can reveal acompletely different perspective. It is prudent to examinelonger-term charts, for that bigger-picture perspective, whencontemplating a trade.
