Quickly understanding various charting forms and patterns is a valuable skill that futures traders need to cultivate. When the market is jumping, you often have only nanoseconds to make a trading decision. Successful futures traders learn to read and understand their charts at a glance. In the next few posts we’re going to go over some charting basics that are important to futures traders.

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Futures traders have a vast variety of chart types to choose from. The most used are Western bar charts; and the least used, point and figure charts. Newspapers seem to favor line charts for their easy readability. But many futures traders have found Japanese candlestick charts extremely useful, particularly because they make it possible to determine at a glance whether the bulls or the bears are in control of the market.

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Retracements are a key charting tool used by futures traders to predict price movements and select entry points. The key value in retracements is that they keep the successful futures trader grounded in reality. They provide traders with an objective view of actual market movement. They help futures traders keep their hopes and fears in check and deal with market movement dispassionately.

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Knowing when and how to make your entry point is the key to a profitable trade. Many of the losses you suffer as a futures trader will be directly linked to poorly-timed or ill-placed entry points. Choose your entry point unwisely or time your entry poorly and you can turn a sound trade into a loss. Conversely, doubtful trades can come up winners when entry occurs at the proper point and time. The entry is the most critical part of any trade. The trick is in knowing when to strike.

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Understanding the risk/reward ratio and incorporating it into your futures trading tactics is essential if you want to succeed as a futures trader. Learning to use the risk/reward ratio can help you minimize your risks and maximize your trading profits.

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Just as a craftsman keeps his tools sharp, clean and well organized, so must a futures trader keep his “tools” in peak operating condition. A futures trader’s ultimate tools are his mind and his body. Yes, we use systems, triggers, indicators, charts and other tools and tactics — all important. But without the human trigger they are useless. If you do not take care of your physical and mental self and keep yourself in peak trading condition, you will not be able to maintain the level of concentration, stamina, quick reflexes and clear thinking necessary to succeed as a futures trader.

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There are certain psychological characteristics that can negatively impact your ability to succeed as a futures trader. Learn to recognize these behaviors in yourself and guard against them.

• Cheapskate. Many people are foolishly cheap. They are so anxious to start trading on the futures markets that they ignore the necessity of first acquiring the proper education, tools and software to succeed. These people will lose more money in their first round of trades than they would have spent on the tools that would have allowed them to succeed. You can’t be “penny wise but pound foolish,” as my grandmother would say. Don’t nickel and dime your training budget. If you truly want to succeed as a futures trader, spend the money to learn from the best and acquire the best tools available. Click here to hear what my students have to say and learn more about my Futures Trading Secrets Course.
• Impatient. We lived in a society increasingly driven by instant gratification. We don’t want to wait for it or earn it; we want it now! Futures trading is a fast-paced, risk-filled environment that seems to attract people who like to live in the fast lane. These people are so blinded by the dream of instant wealth that they neglect their training, fail to take the time to develop a reliable system, refuse to stick with their system and, as a result, crash and burn. As grandmother would say, “You have to crawl before you walk and walk before you run.” If you want to succeed as a futures trader, slow down and take the time to learn the ropes and develop and practice your system.
• Greedy. Futures trading is not the way to get rich quick, though some seminar organizers use that as a marketing ploy to lure the unwary. Successful futures traders are not  gamblers. You cannot succeed by trading out of greed or desperation; or as my grandmother would say, “A fool and his money are soon parted.” Using emotion as a basis for trading is a quick path to failure. Success futures traders learn all they can, develop their system, work it and stick to it. Success as a futures trader comes from accumulated profits (often small at first), not one big score.
• Overconfident. If you want to succeed as a futures trader, park your ego at the door. Ego distorts rational thinking. The overconfident trader allows emotion to rule his actions. He is so certain that he is right that he will overstay a position to avoid admitting he was wrong. The market is fluid, ever changing. A futures trader must be fluid and able to change position to succeed. You will never be smarter than the market; the market will always win. As grandmother would say, “Pride goeth before the fall,” to which granddad would add, “Don’t bump your nose on the way down”

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The power of the media to lead public opinion has been demonstrated time and again. While the fourth estate would argue that they are merely reporting the news, they do, in fact, manipulate – and to a certain extent create – the news, particularly with regard to the economy and the markets. The market is a reflection (some would say, prediction) of national and world economy. In part, market movement is driven by the emotions of people, their confidence or fear, satisfaction or greed.

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In 1982 the futures markets started trading options. The appeal of trading options as opposed to futures is the potential to increase profit — often substantially — while limiting risk.

What is an option on a future? An option gives the buyer the right but does not obligate him to buy or sell a particular futures contract at a set price at any time prior to a specific date. When the option is exercised, it is the actual futures contract that is delivered to settle the transaction, not cash.

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You can profit in futures trading when you understand what the spread is and how to make it work for you. An arbitrage technique, the spread is the purchase of one futures contract and the simultaneous sale of a different but related futures contract. The goal of the futures trader is to make money on the change in the price difference between the two contracts.

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