I wanted to write about mistakes new day traders and new futures traders make since I would consider myself a new trader. With only about 1.5 years experience, I still make plenty of mistakes that I know better. In some ways it’s far less forgivable when you know what you shouldn’t be doing but do it any way. For brand new traders, lend me your ears, or eyeballs, and hopefully I can steer you clear of some of the common pitfalls that I either know new traders fall into, or mistakes I’ve made myself and am happy to admit.
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You Will Lose – Learn How To Lose
Losing is a big part of trading. No one comes in and hits winners every trade, not even 90% of the time. Depending on your strategy, you might be losing a lot. That’s not a bad thing. For example if you have a strategy that has a 2:1 Risk to Reward (RR sometimes called), that means each time you win, you win 2 ticks, when you lose you lose 1. Or some proportion of that, maybe 10 win or 5 loss is more reasonable. Even if you only win 50% of the time, this is a more than profitable strategy.
What you do with those losers is the defining moments. Slipping on your own rules, a trade that is 5 against you and you think it’s bound to turn around so you don’t get out, and next thing you know its now 10 against you. Learn to handle losses. There’s not too many jobs out there where you can go to work and actually lose money some days.
Manage Your Losing Magnitude – Don’t Dig Big Holes
Along the same idea, you need to manage your winning and losing days and the magnitude of them. It is very easy to let a losing trade and or a losing day get out of hand. We take a 10 tick loser. Next thing we want to revenge trade and make that money back. But the next trade is another loser. We’re more on tilt. Before you know it you are down 35 ticks, and your average winning day is only 10-15. You just dug yourself a big hole that’s not going to be fun to get out of.
Cut your losing days quick, the same as you need to cut your losing trades quick. Sounds easy in theory, it’s not so easy in the heat of the moment. If you struggle with this, set hard stops for the day. You can also ask your brokerage to implement a dollar amount stop for you that will look you out if you surpass it.
Press Good Days
Some people set specific profit goals for the day and call it quits when they hit it. Even if it’s just 1 trade they stop. The logic is somewhat flawed though. Some days we have it, we are on our game, the market is working well for whatever strategy we use. You should press your advantage on those days. Not necessarily size up, but keep trading. Cut your losing days short, but press your winning days for all they are worth.
I’ve heard, and experienced somewhat, that for traders most of their money is made on just a few great days. The rest of the days you are just trying to tread water, make a little, lose a little, but be in the game so when the big day does come along you are there to grab it. So if you find yourself in a big day, capitalize on it.
Believe In Yourself
When you take a few losing trades it’s really easy to start doubting your ability as a trader. You have to let go of the losing trades though. Learn from mistakes, work on fixing them, clean up your game. But they are just trades. Let them go, focus on the next trade. There’s nothing you can do about the past. The most important trade is the next trade you’ll make.
If ever really in self doubt, think about how far you’ve come. You probably didn’t even know about the futures market a year or more ago. You have a foundation and a base of knowledge now to work with. Even if your game is 100% yet, mine is no where near where I want it to be, you have something to work with.
Step Away When Tilting
Sometimes walking away is the best thing you can do. Just exit a bad trade and walk away. The market’s always there. In fact the futures markets are open 23 hours a day 5 days a week. There’s trading to be had later in the day, or tomorrow, or next week. There’s no fomo to be had since there’s always more trading.
The worst trades I’ve taken were ones where I jumped right back in after having a bad trade. Bad trades tend to spawn like gremlins. Don’t let them, just walk away.
Learn For Yourself – Don’t Follow Others
This one I’m pretty passionate about. I’ve worked in other industries that involved money, and just like trading, anytime there’s people entering who sometimes have dollar signs in their eyes, there’s a lot of people looking to take advantage of the new comers.
They sell indicator packages, they sell courses, they sell mentorship. All with the promise of you becoming rich fast. They by design appeal to peoples get rich quick mentality. In the end, they make money by selling you, the newcomer, “stuff”.
I’ve seen it a million times. I implore people to think twice before spending money on all the things listed above. I’ve yet to read an honest story of someone who was brand new to trading, spend $3,000 on a course, and started making money hand over fist. Doesn’t happen.
I can use myself as an example to what I think is a far better path. I’ve paid absolutely zero dollars for any courses, chat rooms, trader education or other. I spent 4 months learning everything I could on YouTube.
What I did spend money on was a) trader evaluations b) software (Jigsaw Daytradr and NinjaTrader Lifetime License) c) Tradervue (journalling) and d) Funding my own trading accounts also.
Invest in yourself, invest in your tools.
Set Your Own Stop Loss and Abide By It
I mentioned above you can have your brokerage set a stop loss. I’ve done this. I had to. I blew up a few, albeit smaller, accounts with my own money. Finally I relented, I needed a safety net, something to actually just lock me out of trading.
You pick the amount. For myself, I said “hey Mr. Broker, if I lose more than $300 in a day, lock me out”. They said no problem. I found out very shortly thereafter it actually works. And guess what, it was for the best. $300 was an amount, while not thrilled about losing, was reasonable. With my strategy that gave me 3 attempts from the start of the day. If I had 3 losing trades (my stop per trade is obviously around $100), then I’d be done. No more trading.
It’s amazing how this can both save you from tilting off even more money, and also how very, very careful you’ll become when you know now there’s no rooms to screw up. If you plan on putting in a healthy trading session on a given day, you better be real careful about those first few trades.
Aside from your brokerage doing this, you can obviously just set a stop loss yourself and stick to it, if you are disciplined. Some software packages allow you to set this. For example in Rithmic, you can set a daily max loss. The only trick is you can easily go in and change this if you hit it. But if you are disciplined, it’s a great first step.
Play The Long Game
This is something I’ve come to learn more over time. I’m still learning it, but I’ve come a long way. I used to seek out the home run trade. I still do sometimes. But I’m far more aware of my statistics. One big change I made was not focusing on dollars anymore, I focus on ticks. My goal right now is to make 100 ticks trading ZB and UB. It completely divorces money from the concept of trading and divorces time also. Now it’s more like a scorecard. I made 4 ticks. I lost 2. I made 3. I lost 3. I made 6. I lost 4. They are just ticks. Eventually, the winners and losers will add up to net 100, my goal.
Since I trade the 30 Year Treasury and Ultra Bonds primarily, a tick is $31.25. A 100 tick goal is therefore a little over $3,000 trading just a 1 lot. Subtract commissions, somewhere between $2,500 and $2,800 most likely. Depends on how many trades. Doesn’t really matter. I’m not chasing a specific dollar amount, and it doesn’t matter how long it takes. And I do that by adding up ticks. Once I reach that goal, I’ll set a new goal, and progress.
Also this is where the long game comes in. If i know I’m a 63% winner in the treasuries, the math will play out. It doesn’t matter that today was a 3 trades and 3 losers day. Because there’ll be 3 trades, 3 winner days. Or win streaks. As I type this I just had 3 winning days in a row. Not 1 losing trade in fact. 6 trades, 5 winners 1 break even. Pretty nice. I know there’ll be losers though. The long game numbers will happen. But I’ll be okay when that loser comes along. Likewise, if there’s a few losers in a row, I’ll be okay. Be in it for the long run. The journey isn’t a straight line. Just get the general trajectory correct, I said it before.
It’s not a matter of “IF” my 100 tick tally will happen, it’s honestly not even a matter of “WHEN”. It will happen because I’m playing the long game. Think of it as goal setting. Reach the goal, reflect on the good and bad of what. did to get there, improve on it, and set up a new goal.
Conclusion
These are some, not all, of the pitfalls a new trader can fall into, and some recommendations I can make. I tell these tales out of experience. I still struggle with some, but the key is improving and committing to making progress and getting better. It’s not a smooth steady, straight line upwards of profitability and achievement. The road can be bumpy, but if you get the proper trajectory in the long run you’ll get where you want to go.
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Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
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Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.
In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.
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