Many futures traders start trading, make some decent profits, and then, all of the sudden, encounter what seems to be an endless string of losses. These losses eataway at their trading capital as they struggle tofigure out what they are doing wrong. To be successful trading in the futures market, you must know what the common pitfalls are and how to avoid them.
Common Futures Trading Mistakes
You can improve your odds of success by avoiding common mistakesmany beginnerfutures traders make. These include:
1. Not Sticking With Your System
All successful futures traders have a system in place to help them select trades and keep losses to a minimum. However, just when a trading strategy is starting to show promise, many traders will deviate or abandon the system they are using. Doing soallows emotion to creep into their trading,which ultimatelyleads to losses.
2. Not Protecting Yourself
Futures trading (like all trading)involves a certain degree of risk, so it is important to protect yourself. There are a few ways to do this, such as using sell or buy stops to limit your losses to a comfortable level, or by using hedging strategies like buying puts. Taking steps to protect yourself will help keep losses to a minimum while maximizingprofits.
3. Not Staying Focused
Trading futuressuccessfully requiresyour undivided attentionto read and evaluate the markets effectively. Sometimes distractions are unavoidable, but you always want to have as fewas possible when you are trading.
4. Not Being Open to New Ideas
The markets are always changing. No matter how great you think you are as a trader, there's always a new idea that can help you improve your results. Too often, traders get caught up in thinking they already know enough and aren't willing to learn anything new. As market conditions change, this type of trader is left behind with nothing to show but losses. However, if you remain open to new ideas, you will be able to change with the markets—and profit consistently, no matter what they do.
Qualities of Good Futures Traders
A good futures trader is someone who can profit in any type of market condition. Traders come from many different backgrounds and lifestyles, but most good futures traders are:
1. Independent Thinkers
Great futures traders think for themselves rather than follow the crowd. They pay attention to what is happening in the markets and the world to help inform their trading decisions.When the market is falling, they avoid panicking and turn tobearish strategies to make money. They also avoid getting too greedy in rising markets when many investors behave as if the market will go up forever.
2. Strong Analysts
To be a good futures trader, you must understand technical and fundamental analysisand be able to apply them to spottrading opportunities. If you are a beginner,gaining the necessary knowledge and experiencemay seem like an enormous task. But a wealth of information can be found in books, magazines and on futures-related websites. As you are learning, you can practice and hone your skills bypapertrading.
3. Active Learners
Successful futures traders never stop learning. Consider going to seminars or other events where you can interact with traders and continue your education.
4. Handy With the Tools of Their Trade
Information is key when trading futures. Make sureyou have the ability to place trades 24 hours a day, have access toreal-time quotes and software to help you analyze the markets, and be able to receive fast executions. With these tools, you can react quickly to changing market conditions.
The Bottom Line
Being a good futures trader means staying informed, sticking with your system, honing your skills and learning from mistakes –your own and those of others.By following these simple tenets, you can increaseyour odds of seeing more profits and fewer losses in thechallenging-yet-rewarding futures market.
FAQs
Futures traders tend to do inadequate research.
Most traders overtrade without doing enough research. They take too many positions with too little information. They do a lot of day-trading for which they are undermargined; thus, they are unable to accept small losses.
What is the biggest risk of loss in futures trading? ›
One of the simplest and commonest risks of futures trading is the price risk. For example, if you buy futures, you expect the price to go up. However, if the price goes down, you are at risk of loss. For futures traders, the biggest risks of futures trading come from the adverse movement of prices.
What is the number one mistake traders make? ›
Studies show that the number one mistake that losing traders make is not getting the balance right between risk and reward. Many let a losing trade continue in the hope that the market will reverse and turn that loss into a profit.
What not to do when trading futures? ›
Don't make the beginner's mistake of using all the money in your account to purchase or sell as many futures contracts as you absolutely can. Occasional drawdowns are inevitable, so you should avoid establishing a large position where just one or two bad trades can wipe you out financially.
Why do 90% of traders fail? ›
Without a trading plan, retail traders are more likely to trade randomly, inconsistently, and irrationally. Another reason why retail traders lose money is that they do not have an asymmetrical risk-reward ratio.
Why do 99% of traders fail? ›
The most common reason for failure in trading is the lack of discipline. Most traders trade without a proper strategic approach to the market. Successful trading depends on three practices.
Why do I keep losing money on futures? ›
Poor risk management: Traders who do not properly manage their risk are more likely to suffer large losses. This is because they may not use stop losses or they may not take profits when they are available. Overtrading: Traders who overtrade are more likely to make mistakes.
Why do people lose money in futures? ›
In the futures market, traders face basis, leverage, liquidity, market, and regulatory risks. Recent research shows newer traders often struggle to navigate the complexities of futures trading, leading to poor decision-making and an increased risk of losses.
What is the success rate of futures traders? ›
Tradeciety provides clearer and more time-specific futures trading stats–namely, that 40% of all futures day traders quit in 4 months, 80% quit within a year, and that only 7% are able to last 5 years or more. Bear in mind that among the 20% who last over a year, not all of them are profitable, just persistent.
Why 95% of traders fail? ›
The emotional aspect of trading often leads to irrational decisions like panic selling. When the market moves unfavourably, many traders, especially those who are inexperienced, tend to panic and exit their positions hastily. This panic selling often occurs at the worst possible time, leading to significant losses.
The best trade in history is often considered to be George Soros's shorting of the British Pound in the early 1990s, making over $1 billion. This trade, along with others by notable investors, involved highly leveraged currency exploitation.
What is the 80% rule in futures trading? ›
Definition of '80% Rule'
The 80% Rule is a Market Profile concept and strategy. If the market opens (or moves outside of the value area ) and then moves back into the value area for two consecutive 30-min-bars, then the 80% rule states that there is a high probability of completely filling the value area.
What is the best time of day to trade futures? ›
The Best Futures Trading Hours in the Morning Session:
9:30 – 11:30 AM is the most liquid session and is called the US and EUR “overlap” European traders need to close their positions at the close, forcing an increase in volume. These are the hours you will have the most opportunity in the morning.
Is futures trading actually profitable? ›
A futures trader can potentially profit by correctly guessing the direction that the price of gold will move. But if the futures trader guesses wrong, he can lose his entire investment and more. Now that you know how a futures contract is used, let's look at five key components of a contract.
Are futures hard to trade? ›
Trading futures successfully requires your undivided attention to read and evaluate the markets effectively. Sometimes distractions are unavoidable, but you always want to have as few as possible when you are trading.
