As 2011 comes to a close, it is normal for all of us who participate in these markets to look back and review the trades we’ve made and the opportunities we’ve missed. This arbitrary date which we consider “The New Year” provides many traders a clean slate to start fresh and do things differently. We’ve all made mistakes in these markets or hit an unforeseen landmine that resulted in a trading loss. Over the holiday break, take some time to read about the past year; think about how you reacted and the decisions you made when certain events occurred. If you read anything with the author claiming that he got through the past year unscathed, I suggest taking the paper it’s printed on and using it for kindling.
I encourage everyone, whether you had positive triple digit returns or negative performance, to evaluate the year and create a list of realistic goals and resolutions that you can abide by. As a broker in this business, I have gained a perspective from observing other traders’ mistakes and triumphs. With that in mind, I’ve put together some ideas that you may find helpful for your 2012 resolution list.
- Use a trade log: Keep a journal next to your trading platform and record every trade you make. Keep notes regarding why you entered a trade, how much you want to make, and how much you are willing to lose. If you do this for one year, your resolution list for 2013 will be much easier to compile. As events occur at a rapid pace, recalling the why behind each position change or decision can be difficult. Keeping a log not only helps track profit and loss, but it can track your emotions behind each trading choice you make. Keeping a log makes evaluating yourself much easier.
- Define risk and reward for every trade: This can be done with stops or hedges. Write down how much you are going to risk on each trade and stick with it. Trading is a psychological test, not an intellectual one. Taking losses is the hardest thing to do when investing in these markets. By defining risk, either via stops or hedges, you have a window to reevaluate everything and see if the trade is still worth investing your time and money.
- In volatile markets, trade with half the positions: If the market of your choice has a standard daily range of 2%, and that range jumps to 4% over a short period of time, trade with half of the positions you normally would. Compare stepping to the plate against a little league pitcher who throws 50 MPH versus stepping to the plate against Roy Halladay. Swinging a lighter bat may be the only way to catch up to the heat. Trading with smaller positions will allow you to handle the greater swings and speed that volatile markets bring.
- Explore a new style of trading: If you are an option trader, learn how to combine options to create more defined trades. If you trade futures, learn to trade the spreads. Try to expand your knowledge base and live by the following mantra — Just because I don’t trade it, doesn’t mean I don’t need to learn about it.
- Learn to decipher a profitable trade from a successful trade: I come across traders of all types; some do well while others do not. I believe that those who are the best traders are not always the most profitable. The guys who make money and live to tell about it capture the most profits with the least amount of risk. Applying leverage and saying a prayer sometimes works; it can even work over a long period of time. However, it shouldn’t be confused for a successful trading strategy. It is those types of traders who get the rug pulled out from under them when they least expect it and are out for good.
I hope these tips and resolutions help you come up with your own list. This past year has been a roller coaster ride; use the scars the events of the last twelve months have provided to make better trading decisions.
On behalf of everyone at Daniels Trading, we would like to thank you for your continued support and using our futures blog as an educational resource. We will continue to strive to provide you the best perspective and information to assist you and your trading decisions. This is a marathon, not a sprint. Keep grinding in 2012.
Basic Training for Futures Traders
This guide provides tips for successful commodity trading compiled from the advice of more than one thousand futures brokers. The top 50 of more than five thousand suggestions are included in this guide.