Becoming a Successful Futures Trader

Why You Need a Trading Plan

Most traders fail because they either don’t have a trading plan or they don’t follow their plan. A trading strategy that covers every step of a trade from entry point to exit will help overcome the biggest problem in trading, namely emotions. The more you are able to stay objective when trading, the higher the likelihood of becoming a successful futures trader.

The problem with emotional reactions is that most of the time they cloud a trader’s judgment. This leads to a common situation where you are unable to analyze the movement of the market objectively and rather than make decisions based on what they market is actually doing, you make decisions based on what you hope it will do.

You need to understand a basic principle when it comes to the market. The only thing that is predictable about the market is the fact that it is unpredictable. It is probably the only situation in life where you can do the exact same things under the exact same conditions but have a different result every time. If it were predictable then everyone would be a successful futures trader. However, no matter how much you analyze the market, how many indicators you use or how much fundamental analysis you conduct, there is still no way to guarantee results.

Therefore, objectivity is vital, because a trade that might have been successful yesterday is not guaranteed to succeed today. Yet most people end up stuck in losing trades because they “just know” that the market will suddenly change direction in their favor, no matter what price movement is telling them.

Trading Styles

There are three general trading styles that are dependent on the three directions of the market. The market can move either up, down or sideways which leads to different trading styles, namely trading the reversal, momentum trading and swing trading. While everyone develops their own style with experience, you first need to understand the basics before you can become a successful futures trader.

Trading the reversal simply means that you are looking to trade when the market changes direction. Finding the turning point is the key to being a successful futures trader when reversal trading. This turning point can be identified by using moving averages and trend lines which will show you when their might be a meaningful change in trend. One thing you need to remember is that the stronger the trend, the stronger the reversal will be.

Trading with momentum is probably the most used style and it goes hand in hand with the classic saying of “the trend is your friend.” It basically involves trading in the direction the market is moving at the time. So, if the market trend is up then you need to go long and if it is trending down then you need to go short.

Swing trading is used for markets that are moving sideways, known as being within a certain trading range. This means that the price fluctuates for a long period of time between two narrow points. Some trading ranges can last years.

Becoming a successful futures trader hinges as much on your ability to stick to your plan as it does on developing a profitable strategy. However, the one thing you need to remember is that adaptability is just as important because the market is always changing. If you find that your current strategies are no longer working, then you need to develop a new one, back test it and then implement it.

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