Futures trading is a risky business. The untrained, unwary, unknowledgeable, undisciplined or sometimes plain unlucky can lose a fortune — and in an agonizingly short time. In fact, the SEC requires futures trading websites to post a disclaimer concerning the potential risks involved in trading commodity futures. You’ll find a full disclosure statement on my Futures Trading Secrets website.

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Commodities, like the market, are cyclical in nature, rising and falling according to the current business cycle. Like other market vehicles, commodities are influenced by economic forces. However, unlike other market vehicles, futures traders can trade commodities profitably even in bad times.

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“Your actions affect your attitude and your attitude drives your actions. It can indeed be powerful to get your actions and your attitude working consistently in the same direction.”

As we enter a new year, I find these words from the Daily Motivator of particular import to my life as a futures trader. More than anything else, your daily attitude affects your ability to perform successfully as a futures trader. If you stay positively focused, you will be able to assess your position will confidence and pull the trigger at the precise moment to ensure maximum profitability. Allow negativity or self-doubt to eat away at your confidence and you will fail.

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There are a number of qualities that define a successful futures trader — the keys to success.

1. Discipline. Discipline is the primary key to successful futures trading. You must have the discipline to learn your system, study it daily and tweak it to perfection. You must have the discipline to keep a trading log that records your trades, as well as the market conditions, thought processes and external influences that affected each trade. Without such a log, you are doomed to repeat your mistakes, rather than learning from them. You must have the discipline to do your homework, to study and keep up with the market, to keep your system current.
2. Patience. You must be patient if your trading system is to be effective. By trading too soon, you negate the value of your trading system. You must exercise patience and give your system time to work.
3. Loss. Loss is part of the trading game. You must be able to take losses in stride and get right back in the game. When your system dictates that a loss be taken, you must have the discipline to follow your system, take the loss quickly, minimize the damage and move on.
4. Perseverance. There are no overnight success stories in futures trading. Success is a matter of building experience, working and perfecting your system, minimizing losses, and capitalizing on small gains. Success, particularly at the beginning, is more often a series of small steps than giant leaps.
5. Confidence. Above all, a futures trader must have confidence in himself. You must have confidence in your system and your ability to work your system — to pull the trigger. Futures trading is a game of risk. You can’t be afraid to act. You must have confidence in your ability to read your system and act. Those who hesitate are doomed to lose in the futures trading game.
6. Flexibility. The market and market forces are ever-changing. You must have the flexibility to change with the times, to make changes to your system so it remains viable and in tune with current market conditions.

There are four key elements to achieving success as a futures trader:

1. Self-confidence
2. Discipline
3. Ability to handle loss
4. Profitable trading system

Self-confidence. If you aren’t confident that you can become a successful futures trader, you might as well pack it in now and save yourself a lot of grief. Successful futures traders are bold, aggressive and self-assured. They do not lose faith in themselves when they lose. They have the courage and self-confidence to keep trading. Futures traders are risk takers. We are the Mario Andrettis of Wall Street.

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Futures traders come in all flavors but it’s basically a Neapolitan world. You can be a scalper, swing trader or a combination trader. Mindset and methodology generally determine in which sector of the futures trading world you’ll thrive.

Scalpers. Scalpers seek immediate gratification. They look for short-term market movements seeking to shave money off the bid/ask price spread. Holding each position for only a  very short period of time (often only minutes) to minimize risk, scalpers make small gains through rapid trading. (more…)

Futures contracts are complex financial instruments and trading them demands constant daily, even hourly, monitoring. When you trade futures, there are myriad shifting variables that must be monitored continuously. Trading futures is about minimizing risk and maximizing profits. Profits are often made on small price points in an interval of minutes. To make money, you have to be there, in the game, ready to grab an opportunity when it appears.

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To succeed as a futures trader, you need to think creatively about commodities. The story of Sam Brannan, California’s first millionaire, serves as an excellent example:

At the beginning of the 1848 Gold Rush, Sam Brannan, who owned a general store in Sutter’s Fort, discovered that John Sutter and James Marshall had discovered gold. Understandably, the discoverers wanted to keep the strike a secret. Brannan agreed, then quietly scoured northern California buying up every shovel, pick and pan he could find until he had cornered the market. He then went around town yelling, “We found gold!” and the Gold Rush was on. Hundreds of people flocked to northern California, all needing shovels, picks and pans to search for gold. And there was Sam, the only source for hundreds of miles around! Sam Brannan never lifted a shovel, never swung a pick, never shifted a pan in the search for gold, but he became the first millionaire of the Gold Rush — selling shovels.

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We’ve been talking about charting basics lately and the signals charts give the futures trader. But signals are worthless if you fail to act. To be a successful futures trader you must not only know when, but have the courage to act. In futures trading, we call this pulling the trigger.

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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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