This article on futures trading performance and trading losses is the opinion of Optimus Futures.
Tens of millions of futures and options contracts trade daily on the Chicago Mercantile Exchange.
And the numbers seem to climb every year.
Why?
First off, the leverage traders receive in the futures market provides them with capital efficiency for both speculation and hedging.
For example, one futures contract in crude oil leverages 1,000 42-gallon barrels. Every +/- $1 move is equivalent to +/- $1,000. In other words, if a trader buys one futures contract and crude oil rises $1 above their entry, the trader will be up to $1,000.
Believe it or not, you don’t need a large amount of capital to control 42,000 gallons of crude oil or any other futures listed product for that matter (interest-rate, equity indices, agriculture, cryptocurrencies, metals, and energy.)
However, despite the opportunities in futures trading, most folks who try will end up losing money.
In fact, a lot of them position themselves for failure before they even place their first trade of the day.
You see, after more than two decades of working with traders, we discovered the five critical mistakes which hinder futures trading performance for many traders every day.
Once you’re made aware of what these five problems are, and how they ruin productivity in the morning, you’ll be more conscious of not letting them influence your trading.
Mistake #1 Disregarding Health
Trading futures and options is a risky business. Making fast decisions when money is on the line can be stressful. To perform at your best, your mind and body need to be in a good place.
That means:
- Getting plenty of sleep (6-9 hours)
- Routinely exercising to combat stress
- Eating healthy to sharpen your mind and body
- Consider adding a mindfulness practice like meditation
Plus, traders often spend hours in office chairs staring at computer screens. Like long-haul drivers, this can take a toll on your posture and vertebrae.
During the trading day, you want to set time aside to stretch and walk around. Inactivity can lead to a number of health problems including an increased risk of stroke.
Make sure you pay attention to your energy levels as well. It’s one thing to do all the right things. It’s another to have the energy to think through and make critical decisions.
Take a personal inventory before you start each day to make sure you have the energy and are prepared for what the day may bring.
Mistake #2 Didn’t Do Your Homework
Futures traders don’t have to worry about corporate earnings, analyst price targets, or influencer pumps. The futures market is powered by the forces of supply and demand. However, that doesn’t mean there aren’t catalysts.
For example, if you’re a crude oil futures trader, then it’s your job to be up on geopolitical news, be aware of any possible supply shocks, and weekly inventory reports.
Imagine getting long crude oil at [10:00] AM ET on Wednesday because you liked the chart setup. However, if you did your homework, you would have realized that each Wednesday at [10:30] AM ET, the Energy Information Agency releases the petroleum status report.
That report has the potential to move crude oil futures in a massive way. And if you didn’t know about it could immediately hinder your futures trading performance.
Whether you’re trading T-notes, e-minis, or soybean futures—there are catalysts you need to be aware of, and it all starts with your morning prep.
Take some time to lay out the events of the day, identifying potential market-moving events. Look for trends and patterns in the market based on short, medium, and long-term charts. Identify any divergences or points of interest that could be signals of a broader market shift.
Use these to create a hypothesis and working theory about the market. Then, let the trading data validate whether you’re correct or not.
Mistake #3: No Plan
Successful futures traders come into the trading day prepared. They have a plan. Now, some folks will make elaborate trading plans, play out a number of what-if scenarios, and come up with advanced algorithms.
Others keep it simple and clean, highlighting the strategies they’re working on, and goals they’d like to achieve.
However, there are only three outcomes from trading. You are either going to be right and make money, wrong and take a loss, or break-even.
That’s why your trading plan should have at least some basic elements.
For example:
- Reason for getting into the trade
- Price entry
- Exit Price (should have two here, a stop loss, and a profit target)
The only way you’ll be able to improve your futures trading performance is if you’re able to assess your performance and identify your strengths and weaknesses. If you can’t define your strategy or explain your trading plan, then it will be hard to replicate your success when or if you find it.
That’s where a basic trading plan and journal help keep you focused on the trades you want to take and out of the ones you need to avoid.
Mistake #4 Letting The Past Dictate Your Future
It doesn’t matter how long you’ve been a trader, at some point or another, you’re going to experience a series of losing trades. Maybe it’s because the market has changed and you haven’t adjusted, you’re on a losing streak and it’s impacting your confidence, or the market has gotten a lot harder to trade.
No one wins all the time. However, you should never let a bad day impact how you’ll trade the next day.
How many times have you heard of traders who think the market owes them money after a day of losing? They think the best time to get it back is the next possible trading day. However, that’s the wrong attitude.
It’s also a mistake to trade scared, angry, or not having confidence because you’re experiencing a drawdown.
How do you not let past performance impact future performance?
One step you can take is by reviewing your past trades. Find out what is working and define the setup and the mechanics behind the trade. You will have more confidence once you’ve built a track record up.
On the other hand, if you review your trades and notice that a former winning strategy is struggling in the current market, maybe it’s time to reduce the size next time you see it or eliminate it until it works again.
Mistake #5 The Wrong Mindset
Fortunes are made and lost each day in the futures market.
However, that doesn’t mean you’re entitled to make money in the market. There are absolutely no guarantees that you’ll be a profitable futures trader. Yet, that’s what is on most traders’ minds when they first jump into trading futures.
No one thinks they can run a marathon in a week after their first day of jogging outside…
No one believes they can perform surgery after their first class in medical school..
No one picks up a basketball for the first time and thinks they are going straight to the NBA in a month…
Yet SO MANY traders believe they can come into futures trading with no experience and dominate right from the jump.
After all, it takes time to learn the intricacies of bonds, energy, metals, and agricultural commodities.
Instead of coming in and focusing on how much money you’ll make, put your energy into learning, and focus on developing a process. Worry about the decisions you make rather than the profits or losses from any individual trade.
Take notes and keep records of your performance, ideas, and progress. It doesn’t hurt to work with a pro during the early stages of your journey.
But whatever you do, make sure to have realistic expectations and the right mindset.
If you have a solid strategy and make good decisions, your futures trading performance should improve over time.
The Bottom Line
Many traders set themselves up for failure by ignoring these five key mistakes. While they may seem obvious, it’s easy to overlook them when you get into the thick of trading.
Now that you’re aware of them, we hope you’ll do your best to avoid them.
If you’re ready to make Optimus Futures your go-to broker for all things futures, options, and commodities then click here to get started.
Disclaimer: There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
