“The difference between stupidity and genius is that genius has its limits.” -Albert Einstein
If you’re going to tackle modern financial markets, let alone today’s futures markets, you have to be smart.
While any trading success will be determined by your strategy, risk management and discipline, you can boost your chances of success by not doing repeating stupid mistakes done by futures traders.
Trading With Capital You Cannot Afford to Lose
Do you really think trading with the mortgage money or the kid’s college fund is a great idea? Think again. Trading is a high-risk venture and the vast majority of futures traders lose money. Futures trading should only be done with risk capital (money you can afford to lose without affecting your lifestyle or ability to pay your bills).
Trading Too Big for Your Account Size
Just because your $10,000 may allow you to day trade multiple e-mini SP500 futures contracts, doesn’t mean you should. In fact, the leverage offered by futures is very much a double-edged sword. This leverage maximizes gains and equally maximizes losses. When over leveraging your account, losses can turn into account destroyers very quickly, wiping out your trading capital and putting you out of business.
Not Using Stops
Stops can help you manage risk by closing your position at a point where you know you are wrong. Why hang on to a position any longer? Fear, greed, and the need to be right. Let go of all three and you might be a little more successful.
Trading Without a Plan
Professional traders, the ones that actually make money trading, don’t approach the markets on a whim. They have and execute on a trading plan. Trading plans include strategy, risk management, markets to be traded and more. Would you get into any other type of business without a plan? Probably not. Trading without a plan almost ensures account obliteration usually within a very short period of time.
Focusing on Potential Profits and Not Risk
A novice trader thinks about making money, whereas a professional thinks about not losing money. Risk management is everything. Manage risk and profits may come. Don’t manage risk and you will likely not be in the trading business very long. Forget about the get rich quick schemes and the stories of those who “made a fortune” trading futures. Focus on risk and money management.
Futures trading is an extremely risky proposition, and while there are no guarantees of success in futures trading, not doing any of the above may boost your chances of success.
