fit 7 mistakes futures

8/13/2019 FIT 7 Mistakes Futures

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7 Mistakes to Avoid When Trading Futures

1. Jumping in without a planIf you think this may not seem like it should be high onany experienced traders list of identifying mistakes, thinkagain. Mistakes can be made before any transactionis performed or any position taken. Traders who wantto correct mistakes need to understand what theyare currently doing so they can determine if a changeis warranted, and the rst place to look is in tradepreparation.

Once a trade is selected, you need to have a plan forimplementing, monitoring, and ending that trade. Thisstarts with devising a specic plan for each and everytrade. This requires that you know that market. Learn asmuch as you can before you even think about putting atrade on. Know the typical daily price range, what openinterest is doing, what the trends are, and what and whenany possible reports may be issued. Know your own risk

tolerance to be sure it ts. Set realisticgoals, risk and reward points, and thinkthrough the trade. Does the trade stillmake sense? Are you comfortable withthe risk/reward ratio? If the answer tothese questions is yes, then go ahead and do the trade.

All that sounds simple, doesnt it? Many experiencedtraders believe they are already doing itbut are theyreally? Its far too easy for even a seasoned trader toget caught up in the action, to get bitten by the bug tobe in on a market that is making headlines. This iswhere even seasoned veterans can get into trouble. Bueven worse than diving in haphazardly is not sticking tyour predetermined plan. Be sure to plan the beginningmiddle, and end of each trade and take a step towardsgood trading habits.

Everyone makes mistakes; after all, theyre how we learn. Ask any experienced futures trader about what commomistakes that they make and youre apt to receive similar answers. Identifying those areas where mistakes happenkey to correcting them and becoming a more effective trader. Here are seven of the most common mistakes that futraders make, as well as tips on how to avoid them.

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2. Always using a market orderEntering into a fresh position sometimes requires a littlepanache. An area where mistakes frequently happen iswhen nding an appropriate order style for entry into aposition. Even the best trade is no good if youre not init, so its crucial to evaluate your method of entry. Marketorders may be useful, as they basically guarantee a ll which is sometimes a very good thing. Creative orderwriting is worth exploring, and is a valuable tool thattraders often overlook. Think of a quiver of arrows: Whyuse only one or two when you have some special arrowsthat can be handy and valuable when hunting for prot?

Getting in at the right level can be aseasy as entering a position using aprecise limit. While limit orders maynot always get lled, they do havethe benet of getting you in at yourdetermined price. Also, using stop orders to inaugurateposition has risen in popularity. For traders who depenheavily on technical analysis to provide them with supand resistance levels, stop orders can allow them to takadvantage of momentum shifts as a price blows througan area housing protective stops. They work just as aprotective stop might, and become a market order once

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triggered. Stop limits are another. By using a stop limit order to enter into a trade you have the advantage of the pdrive, as well as a safety net in that your order cant be lled worse than the limit attached.

Most all traders nowadays evaluate the market by analyzing similar statistics. Technical analysts rely heavily on ucharts and mathematical tools to identify patterns that can suggest future activity. Pay close attention to major cha

points and be alert to those points as clear spots for stops to be located. You may nd it advantageous to tweak yoplacement of protective stop orders away from the crowd.

3. Getting married to a position

4. Bad timing

It is never a good idea to get married to a position thedivorce can get ugly and be expensive. Just as tradinga market exclusively from one side is a bad idea, so too

is getting emotionally set in a particular position. Beingemotional about any position is a mistake. Yet, all tradersfall in love with positions from time to time. Its onlynatural ask any professional trader. If youre lucky, theymay even tell you their story. You probably have a story ortwo yourself. Remember these stories today, and try yourhardest to stay unmarried to your positions.

How can traders avoid this mistake? Consider again theplan you prepared and should be following, because it will

Traders often make mistakes in the timing of their trades.This reverts back to knowing the market you trade. Mostmarkets experience heavier volume during certain times for example, coffee is busy at 8:30AM Eastern time.If youre trading coffee, you might want to consider howthat time could provide an opportunity youre not currentlyaddressing. Ignoring it is a mistake. Timing might beusing the open or close to execute orders. There are alot of day traders in certain markets, and the order owfrom those day traders may be able to inuence priceswhen theres a rush to cover positions before the close.Be mindful of trading prior to a months end, or the endof a quarter. There are some traders who for years tradedcotton spreads, knowing that the Goldman fund roll beganon the fth business day of the month. There are traderswho actively predict market ebbs and ows to occur

help keep emotion out of your trades.If you have a risk point that youreusing, use it. Most traders have been

knocked out of positions, stopped outand then lled right at the very low, onlyto have the market turn and run in favor of the originaposition. Such experiences hurt and lay poor groundwfor subsequent trades. That means not sticking to theplan, and thats a mistake. Markets are vicious: they tano prisoners. Guard yourself by sticking to your prepagame plan, and youll be set.

within certain time frames and usethat knowledge to their advantage. Thetiming of trades is a science. Whethertheyre sophisticated or simple, if yourenot considering the timing in the marketyou trade youre making a mistake.

Most every trader uses a computer to help them. Thereare even computerized trading programs, includingalgorithms that trade automatically. These programsare increasing their sphere of inuence in every markeespecially during quiet times. Be alert to this, and knowthat some algorithms perform by hunting for weaknes

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5. Ignoring option contractsIf investing has a proverbial tool box, then options mightbe akin to pneumatic drills. Using options may serve toenhance your trading plan by allowing you to do thingsyou cannot do with futures. Options may provide aknowledgeable trader with exibility, cleverness, and theability to try and take advantage of shifts in volatility aswell as price. Option contracts can be bought and sold, just like futures contracts, but they have unique propertiesthat make them attractive in some situations. Tradingplans with options cover not only bullish and bearish

market bias, but also potential protsin at or sideways markets. While theydont necessarily move at the same rateas futures, options can still be employedby some investors in risk managementscenarios. Options on futures contracts make anappearance in hedging strategies as well, for futuresmarkets and as hedges against other portfolio contents

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6. Not getting the best bang for your buck.Trading futures is applying leverage, and trading optionson futures can amplify this leverage. Not trying to makethe most of that can be a mistake. The markets alwaysoffer potential. Unfortunately, the leverage also has a riskof loss that goes beyond your initial investment. When youare planning your trades, take a serious look at the initialcosts or margins associated with holding the position. Isit worth it? Some futures trades could tie up thousands of

dollars worth of margin while exposing you to unlimitedrisk without offering the potential for an equally rewarding

return. Some options strategies can bea fools errand as well. Why risk $1,000in premium and transaction fees if thepotential prot is only a few hundreddollars more than your initial outlay?Carefully review the risk to reward ratio of any trade yare considering - there might be better bang for yourbuck out there among other trading opportunities.

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7. Not having a disaster planTrading in futures and options are risky enough, but everyonce in a while a disaster comes along that can leave

traders heads spinning. When that happens, its possiblethat even the best-laid trading plan can be ruined. Inthose cases, its important that you always have a disasterplan in place, an idea of how you will react in the extremeand volatile times that follow. No one knows when anotherBlack Swan event will arrive. Have an emergency fund, beaware of your exposure, and keep proper records.

The best mistakes are the ones we never forget. Theyare the mistakes that educate us to the bone. They

can transform us and can lead us toepiphanies. There is no holy grail.

Fortunately, youre blessed with the vastopportunities as a trader today becauseof all the tools in your traders chest.So learn how to use them. Prepare, research, and craft specic trading plan. Study the markets you are plannito trade and never stop studying them. Evolve with themarkets and learn their individual timing. Utilize optiocontracts and aim to make sensible, benecial trades. Adapt and learn how to prepare for the worst but plan the best, and never stop learning from your mistakes.

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