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Trader's Tip
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There are many markets, systems and strategies out there which can easily lead to sensory overload. Choose a market you are already familiar with, start out with a system that you can understand rather quickly and as you become more comfortable over time you can start to use more complex strategies.
- John Weyer
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Today's Featured Article
When I first became a floor trader there were days you could figure out my P & L by the look on my face and body language. Sometimes a veteran trader asked me "Rough day?" It was obvious to him that I was having a challenging trading day. My first thought was to tell him to mind his own business, why did he care how my day was going. It took me a while to realize that he has probably been in the same situation as me, and was just trying to help me learn from his mistakes.
In the process of telling him how I got myself into the hole, he was able to guess my trading decisions that made the hole deeper. He didn't see my trades, but knew exactly what I did because to him, it was a common mistake made by many traders. Often the difference between being a 'good trader' and 'someone who trades', is avoiding these "pitfalls" or "traps".
In the trading pit I was lucky enough to stand next to smart veteran traders who were willing to help me stay away from making the common trading mistakes. Unfortunately most individual investors don't have that luxury. Most people learn best from doing something themselves, and not repeating their mistakes. In commodities those can be expensive lessons. I'll share a few of the lessons I've learned at a much better price.
Lack of a Trading Plan
The first thing you should ask yourself when you decide to open a trading account is, what are my goals? Is your goal a percentage return on your money? Perhaps educating yourself is initially more important than profit taking. Your plan should be set to help achieve your goals. You should also be realistic in formulating a plan. Trying to make $5000 a month on a $10,000 account is not a realistic goal.
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Lack of Discipline
You have taken the time to figure out what your goals are. Part of your plan is to stop trading for the day when you exceed 5% in losses. With $10,000 in your account you start trading the E-Mini S& P 500. Over a short period of time you have built your account to $12,000. Sticking to your plan has helped you get off to a good start as a trader. On a volatile trading day your first three trades are losers. Your P & L for the day is -$650 (down 5.4%). The plan you have set for yourself tells you that you are done trading for the day. The market is moving again, and you feel you can "get some back". The next two trades you put on lose 4 points, bringing your P & L to -$850. At the end of
the day you will be questioning yourself on why you got away from your plan. You could have the best strategy in the world, but it will do you no good if you stray from the rules or parameters. BE DISCIPLINED.
Poor Risk Management
Two traders use the same strategy system. Trader A has an account with $50,000 and Trader B has a $15,000 account. Trader B has watched Trader A make significant gains trading 5 contracts in the E-Mini S&P. Trader B decides to start trading 5 instead of 1 contract in the E-Minis. On a poor trading day their system loses 12 points on 10 trades. Both traders lose $3000. Trader A lost 6% of his account value, but still has enough funds to trade 5 contracts at a time. Trader B lost 20% of his account value because of poor risk management. Trader B was putting excessive risk on a $15,000 account. If he continues to trade in this fashion he will not be around for long. Risk parameters are not
the same for every trader. Know what your risk level is and you will live to trade another day.
Letting Losses Grow
Nobody likes to see their trading positions in the red. But when a trade is against you, it is time to ask yourself if you are on the wrong side of the market. If you are using a trading plan there is probably a point at which you have determined it is time to get out of the position. A trader joins the tail end of a bull run in silver. As silver starts to break down, the trader starts to think it is temporary, and the rally is going to pick up again. Instead of getting out for a $500 loss, the trader leaves the position open for another day. Overnight silver drops another 20 cents, and now the position is down $1500. The trader's reluctance to take a $500 loss resulted in it tripling
in size. Take the loss when it is still manageable. Move on to trade again.
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Overtrading
Tom has watched his $5000 account grow to $8,000 over the course of a year. Tom has been very disciplined, picking his entry and exit carefully in the corn market. He has only traded when he gets his signals, and stood aside when there were no indicators. Tom starts to trade more frequently, almost on a daily basis. He continues to use his signals, but is also entering the market when he has a feeling on upcoming moves. Tom is now averaging 20-30 round turns a month instead of the 8-10 trades he had previously. Within a few months Tom's account is back down to $5000. Tom got away from his plan, and traded too frequently for his account. He was exposing himself to greater risk in the
market. Losing trades can force a trader to change his style and get away from a disciplined plan.
Turning a Winner Into a Loser
Everyone wants to make money in trading. Sometimes a trader forgets that. Taking profits is never bad. Often a trader's goals are too lofty. I see many clients who have $200 to $500 gains on mini grains turn into $400 losers. They are afraid to take profits because it is "too small" or "not enough". If you can book $200 profits on a regular basis you will become a successful trader. Occasionally you may hit a home run. There are plenty of guys in the Hall of Fame who hit singles. Consistent profit taking is the key to success.
Emotion
Trading can be an emotional game. You have put time, effort and money into your trading. Sometimes emotion can get the best of us. We become frustrated with a market going against us. We become overjoyed with a market going our way. Traders have to make a strong effort to remove emotion from the equation. If we are too emotional we tend not to think clearly, and make bad decisions. The best trading decisions are made with a clear mind, not when we are angry or elated with the market.
I'm not claiming to have all the answers or be the smartest guy in the room. I've learned many of these lessons first hand, and many others from working with clients. Trading is a challenging and difficult process. I hope that some of these tips that I have shared will help you succeed in your trading experience. For more trading insight, sign up for my complimentary workshop:
Futures A to Z.
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About the Author
| John Weyer
began his career on the floor of the Chicago Mercantile Exchange. Handling as many as 15,000 contracts daily, he very quickly became more knowledgeable about the infrastructure of futures markets, then the average trader does in a lifetime. After an exciting career as a CME member, floor broker and local trader, Mr. Weyer decided to take advantage of his 17 years of experience to help guide others in their trading. Now as the PTM (Professional Trading Mentor) at PFGBEST he is involved in a whole series of presentations, programs and workshops designed to help traders learn all aspects of trading futures and options |
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Special Message from Our Author
Learn Futures A to Z
Sign up today to attend Futures A to Z,
a complimentary workshop offered by John Weyer, Professional Trading Mentor (PTM) for PFGBEST. John has worked with hundreds of traders in every conceivable market situation. His workshops are usually reserved for PFGBEST clients only, but for a limited-time we are pleased to offer you this same great benefit. Don't wait, space is limited! Reserve your spot today! |
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