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Don’t Make the Same Mistake Twice: Three Ways to Develop as a Futures Trader

September 25, 2020 by Daniels Trading| Tips & Strategies

Throughout the world of finance, there is one key goal: avoiding losing money. Futures trading certainly echoes this sentiment. However, unlike the vast majority of conventional business models, capital drawdowns can be a positive part of futures trading. If done correctly, losing is an invaluable part of trader development.

In this blog post, we’ll look at three tools for enhancing your futures trading skills by learning from past victories and defeats.

Keep a Trade Log

A positive attribute of any winning trader is consistency. Profitable futures traders employ adopted strategies regularly, free of undue deviations. By executing trades in a consistent fashion, a trader can produce quantifiable and replicable results.

One of the tools used to document a strategy’s execution is the trade log. Trade logs come in all shapes and sizes, but they typically answer the following three questions:

  • Buy/sell: Was the trade a buy or a sell?
  • Profit/loss: Did the trade generate a net profit or loss?
  • Market state: Was the market trending, under reversal, or consolidating?

Perhaps the most important of all futures trading skills is consistency. A trade log provides a broad look at all executed trades, the resulting P&L, and prevailing market conditions. It gives traders the ability to compare apples to apples and identify any potential soft spots in their comprehensive trading plan.

Check out our on-demand webinar 5 Concrete Tips for a Solid Trading Foundation  with Chief Sales & Marketing Officer Ken Packard.  In this webinar, Ken discusses how to develop self-awareness and build a solid  trading foundation.

Use the Trader’s Scorecard

Once each trade has been documented, it is possible to conduct an honest performance evaluation. One way to accomplish this goal is to grade your futures trading skills on the trader’s scorecard.

When conducting the evaluation process, there is no need for ambiguity. The market judges participants on a pass-fail basis―arbitrary ratings such as A, B, C, or D are irrelevant. If you make money, you pass; if not, you fail.

Of course, the scale on which success is measured is nuanced. And, unfortunately for active traders, bad habits can be overshadowed by “lucky” trades, small sample sizes, and hindsight bias. To get a truer picture of performance, the trader’s scorecard addresses specific questions on a trade-by-trade basis:

  • Trade execution: Did I place orders accurately, in a timely fashion? Was slippage present? If so, how much?
  • Risk management: Were established risk management parameters employed? Was risk always quantified ahead of market entry, or was it quantified after the fact?
  • Strategic adherence: Did I stick to my strategy? Were all identified trading opportunities taken? Were any trades executed that fell outside of my strategy?
  • Mindset: What was my mindset before and after each trade? Did I maintain a positive outlook in the wake of a win or loss? Did I become angry, aggressive, distraught, or euphoric following a single trade?

By answering these questions, you’ll be able to thoroughly vet both winning and losing trades. Losses stemming from physical errors, emotional trading, or haphazard risk management become obvious. In addition, you can recognize profits attributable to unplanned trades or added leverage. Either way, bad habits are apparent, and you can take steps to mitigate them and shore up future performance.

Don’t Forget to Journal

By far, journaling is one of the more overlooked futures trading skills by traders new to the markets. A detailed journal offers useful insights into each day’s successes or failures. Additionally, the journal gives the trader closure, officially “putting to bed” the trading day, week, month, or year.

In practice, the journal is a comprehensive look at both the trade log and the trader’s scorecard. It documents several key pieces of information:

  • Successes: Were my successes planned and repeatable?
  • Failures: Were my losses justified and taken within the confines of my trading strategy?
  • Mental state: What was my mental state throughout the period in question? Was my temperament volatile or even-keeled?
  • Observations: Was the market erratic or relatively stable? Did any planned or outlier events shake up price action? How did my strategy fare amid atypical trading conditions?

The road to consistent profitability is long and winding. However, by keeping a detailed journal, it’s possible to learn from periodic shortcomings. Moreover, it’s exponentially easier to avoid making the same mistake twice!

Hone Your Futures Trading Skills with a Market Pro

To learn more about how you can hone your futures trading skills, check out Ken Packard’s webinar, “5 Concrete Tips To Build Your Solid Trading Foundation.” In this special event, you will examine your self-awareness and develop a positive mindset side-by-side with Daniels Trading’s Chief Sales & Marketing Officer, Ken Packard.

Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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