Trading futures is a tough business, but if you are one of the very few that can succeed, this could be a very lucrative business as well
Ilan Levy-Mayer | June 27, 2017 | SmallCapPower: I have seen quite a bit since I became a broker in 1998. Some war stories to share about the markets, some crazy moves and much more in between. I was trading futures with clients on the sad Sept. 11th 2001 day when the planes hit and the markets were plunging before they were closed for almost a week. I witnessed the meat contracts making limit up and limit down moves over the years and much more…..
As a commodity broker I have observed MANY traders, many of them were new traders, and this allows me to share with you some valuable observations I hope will help you start your futures trading journey on a much smoother road than most.
Here are the FIVE CRUICIAL MISTAKES you need to avoid!
- Starting with low amount of capital. I don’t care what some people try to sell you out there….If you don’t have risk capital, don’t trade futures. Some trading styles may allow you to start with $5,000, but most will require a higher amount of risk capital in order for you to attempt trading properly and minimize the “greed/ fear” factor. It is my opinion that if you are looking to day trade, $5,000 is the bare minimum. If you are looking to swing trade, $25,000 is the minimum. If you are looking to buy options, you may be able to give it a good shot with $10,000. If you are looking to sell options, make sure you have enough room for the margin calls. Of course, the markets you trade and how aggressively you trade will determine if you need more than the bare minimums I mentioned above. Don’t try to trade 5 lots of crude oil with $5,000. Save yourself the pain – it will not work.
- Not spending enough time on education and research before starting to trade. I have seen too many traders jump into the futures markets because: A. A friend told them they can make money. B. They heard on the news there is a shortage of wheat/coffee/insert name….C. They saw an advertisement of “trading technique” that made it sound like you can make money trading futures in a way that is too good to be true….(if it sounds too good to be true….it is too good to be true!). All of the above are fine in the fact that they exposed you to futures trading and got you curious. Now don’t take the easy way out….Research… talk to experienced traders or brokers. Find out what exactly is the story, what are commodities and futures? Learn about the different trading styles available and then decide how you want to get started.
- Jumping in with real money right away OR spending WAY too much time in simulation mode. The two are obviously the opposite but they are both hazardous to your trading health….If you plan to day trade and jump in before you tried to trade in simulation mode – shame on you, you are about to contribute money to the markets. You must get experience with using the trading platforms, mechanics of the markets, the feel of buying/selling, losses and gains and much more. On the other hand, if you have been trading in test mode for more than 12 weeks, chances are you will never trade live money. Sorry for being blunt, just sharing my personal stats/observations with you…..
- Placing way too much focus and weight on indicators….I fell into this trap…Spent years on different indicators and testing. Don’t get me wrong, indicators can be helpful if you understand that they are just indicators and as such 99% of indicators are lagging and will take shape and form based on price action AFTER it happens. Price is more important than anything. Use a few indicators you understand and feel are helping you but now it’s time to focus on the MORE IMPORTANT things….Trade and money management. Practicing and applying sound money management rules is much more important than RSI or STOCHASTICS. Understating how to manage open positions, when to add contracts, exit, move stops, set targets is extremely important and often overlooked.
- Not keeping track of their successes/failures and trading progress. Here is the best $2.99 you can spend before trading futures. Go buy a notepad and a good pen (or if you are like me and sometimes it’s hard for you to read your own hand writing…), open a Word document and start your trading journal. Make sure you back it up. The notes you will write after your trading day and during the course of trading are SO VALUABLE!! First it allows you to take off feelings and emotions by writing them down. It should provide you with a way to learn about yourself and your trading habits. It will help you keep track of your progress so you can see how you are doing and if you need to make changes. Last, but not least, – Economic reports take place on a weekly, monthly basis and will repeat themselves. You need to know if there is a certain behavior during FOMC days. What about the unemployment report, which comes out the first Friday of every month? If you are trading crude oil futures you better find out what takes place every Wednesday at 10:30 AM EST….
I hope the pointers above will help you and shorten some of the tuition fees you are about to pay the markets….Don’t get discouraged. This is a tough business, but if you are one of the very few that can succeed, this could be a very lucrative business as well.
If you are not familiar with the risks associated with futures trading and/or futures options, I recommend you visit our broker-assist services and get help creating a trading plan.
Disclaimer – Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.
Author Bio: Ilan Levy-Mayer has been a commodities broker for over 16 years and holds a MBA in Finance and Marketing from Hebrew University in Jerusalem. Ilan is currently the Vice President and a Senior Futures Broker overseeing online future trading platforms and Commodity Futures Trading systems at Cannon Trading Company.
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