Because we spend so much time concentrating our efforts on becoming good traders, it can sometimes become rather easy to overlook the more obvious reasons for why we’re not finding success in the futures markets.
Here’s what our coaches have to say
Not all bad trades are bad
Let’s get this part out of the way first; putting on a losing trade does not make you a bad trader. If you put in the work, trust the process, and have confidence in your strategy, then even a losing trade can be viewed as a good trade. In fact, you will often hear traders refer to their best trades as being losing trades; most likely because they had the presence of mind to accept a small loss before it turned into a big loss.
Roll with the punches
Trading futures requires flexibility and adaptability. A stubborn ego is not your friend in this business. While it is important to have strong convictions for initiating a new position, it’s just as important to be able to recognize when the market has turned against you, and that the indicators you rely on to determine future prices are proving to be wrong. This is one of the hardest things for a lot of traders to accept, and it’s usually when emotion takes over, and bad decisions are made.
Keeping your emotions in check will save you a lot of money in the long run. Things like overtrading and revenge trading are direct results of a temporary loss of control.
Try this exercise
If you find yourself in a situation where risking $5K to make $1K seems perfectly reasonable, try to remember to write down what you were feeling at that particular time, then go back and see if you still feel that the risk was justified.
When you’re losing money, it’s easy to be irrational. It’s hard to stop, take a step back, and really think about what you’re doing; that’s why so many traders fail.
5 ways to transform good trades into great trades
Multi timeframe analysis
This is one of those simple principles that goes a very long way. My readers likely remember that I have consulted with many traders in various aspects of their careers. I’ve often found traders employing excellent approaches and systems, but were missing one thing. So, multi-timeframe analysis is one of my first go-to propositions.
One occasion was when a profitable trader was looking for a more significant edge. She had about 50% winners on a 2:1 return on risk ratio. Before quitting her day job and committing more capital toward full-time trading, she wanted to increase her edge to about 60% or greater for winners. For her, the simple remedy was to use a three-time frame analysis to engage her entries more critically. It worked as her winning percentage increased to her threshold. Her new issue was that she was taking only about ⅓ fewer trades. So, to compensate for this, she took on an extra market where her analysis worked, and last I knew, she was trading successfully from home.
Scrutinizing your entries and exits based on multiple time frames is one way to fine-tune your trades, helping to ensure you are entering and exiting as the most opportune spots.
Enter and exit in partials
This is another crucial aspect that has assisted traders in going to the next level with their trades. I have found that most new traders are sometimes tempted to “go all-in” and place 100% of their allocated capital into the trade at once. And, likewise, they often exit with 100% capital as well.
Entering trades with 50% of your allocation can negatively affect securing profit if your trade immediately goes in your favor. However, the benefits are that you can responsibly defend a trade and enter at two preferred technical areas by leaving enough room to add to your trades.
Furthermore, when a trade is going in your favor, you can continue to add to the upside, and if you manage correctly, you can add to the upside with no additional risk if you keep your stop-loss appropriate.
On the flip side, it’s tempting to exit trades all at once, securing a profit. I’ve found one of the most prominent ways for traders to reach profit potential is if they scale out in halves or thirds. We all know how bad it feels to exit a trade with a modest profit and then kick ourselves because if we had only maintained the position, the fair profit would have been enormous.
Blend technicals with fundamentals
This one is a bit more nuanced. If you are a short-term trader, then this is likely less pertinent to you. As for longer-term traders, this critical truth can be a profit inducer. Rather than creating a false dichotomy of technicals or fundamentals, employ them both in your decision-making. Even if you choose to take a trade contrary to fundamentals, then, knowing you are going against the fundamental grain, you can elect to change your management approach, such as trading with a tighter stop loss or even trading smaller.
Go with the flow
Trend and Momentum are a trader’s best friends. While I believe that counter-trend trades are helpful, it remains amazing to see how many traders focus on that type of contrarian strategy. Meanwhile, the path of less resistance is to go with the trend.
Here is where the first rule comes into play. When using multiple time frames, you can go with the overall trend but then counter-trend trade a micro time frame, enabling you to go with a trend continuation pattern of the macro trend. Furthermore, many traders who trade counter-trend don’t properly consider the risk vs. reward aspects.
If you are trading against the trend, you are likely to have many failed trades; therefore, when you do correctly call bottoms or tops, your successful trades need to incorporate an extensive target. I don’t believe you can counter-trend trade with a 1:1 return on risk ratio or even be very successful using 2:1. Instead, if you are going against the trend, you have to aim very large for your winners. However, going with the trend momentum is much easier than swimming against the current.
Pair strong pairs with weak pairs
This one applies specifically for forex traders, but there is a way commodity traders can utilize this as well. I’ve noticed that less experienced currency traders will often use a base market. For instance, many traders will only trade U.S. dollar pairs like the USD/JPY, USD/CAD, GBP/USD, etc. This makes some sense as it is a simplistic approach. However, there is another crucial ingredient that your recipe may be missing.
Let’s say you trade the USD, and the Japanese yen, for example, appears to be weak, and you want to short the JPY. Let’s then presume you go long the USD/JPY pair, but that pair goes sideways. Sure, the JPY may be weak, but if you choose to go long with another weak market, as the USD might be, you could not maximize the potential.
Now, let’s assume the EUR is very strong, then, paired long with the EUR/JPY, that market can capture the full momentum of a weak JPY. Why? Simply put, because a strong market was paired against a weaker one. I can’t begin to tell you how often I’ve seen a good hypothesis fail when implemented into a trading strategy merely because the wrong pair was chosen.
Now, if you are a very advanced trader who holds swing positions in commodities, this idea could also work for you. For example, if you are trading on U.S. futures exchanges, any market is automatically paired to the U.S. dollar. Therefore, if you want to short gold, but do so with the COMEX product, you are also hoping for a strong dollar. However, if the dollar is also weak, then your gold short may not work. But, if you were to short a product like gold futures and do so with a strong currency, you could buy the futures product of that currency, like the 6E as an example, and essentially be short gold via a currency other than the USD.
Here’s what our coaches have to say
Consistency is key
We’ve said it before, and we’ll repeat it, consistent profitability is what really separates the good traders from the bad traders. Getting to this level takes more than just a good strategy. It also requires a great deal of discipline and self-awareness. Take the time to evaluate your strengths and weaknesses seriously. Then you can start to build a trading plan that really suits your personality.
No two traders are exactly alike. Just because Trader A is having success with a particular strategy does not guarantee that Trader B will realize the same success with that strategy. That’s why it’s so important to be honest with yourself when doing a self-evaluation; knowing your character traits and seeking improvement is a healthy path to success.
Learn from your mistakes
The truth is, there isn’t a trader alive who has never put on a losing position. A good trader knows how to take a loss, learn from it, and then move on. Admitting when you’re wrong is one of the harshest realities some traders will face. If futures trading were easy, everyone would be doing it. In the end, you get out what you put into it.
