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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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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Practice makes perfect, my mother used to say. It’s as true of futures trading as of anything else. Before you put your hard-earned cash on the line, you need to practice trading if you want to succeed as a futures trader.

Making practice trades allows you to: (more…)

If you’re going to be a successful futures trader, you have to learn to take emotion out of the equation. Learn to trade like a robot. There’s no room for emotion in futures trading.

Futures traders learn to trust themselves and their system. If you start letting emotion rule your decisions, fear, anger and greed will undermine your carefully planned and practiced strategies. It is by persistently following your system, by dispassionately relying on what your charts tell you, by religiously following your indicators that you will succeed as a futures trader.

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Futures traders use two types of stop losses when they trade: mental stops and physical stops. It’s important to understand the difference between the two and figure out how and when to use them. The purpose of a stop loss is to limit your trade losses. When traders set a stop loss, they are determining the specific price at which they will sell to limit their loss — in other words, their exit strategy.

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Successful futures traders have learned that there are times with NOT trading is the most successful strategy. Achieving success as a futures trader is 90% mental preparation. If you are not mentally prepared, do NOT trade. It can be dangerous and financially disastrous to trade if you are distracted, angry, worried, scared or emotionally distraught. Just as physical illness, tiredness or pain prevent you from focusing on your trading, so does emotional distress. You must have your head in the game every second to succeed as a futures trader. (more…)

Last time we talked about how to evaluate the effectiveness of a futures trading system. But how do you build a solid trading system? Just like anything else:

1. Start with your goal. What do you want to accomplish or achieve? What end result are you aiming for? This is your goal.
2. Develop a plan to achieve your goal. You’ll need to factor in the risks, rewards, terms and conditions necessary to achieve that goal.
3. Execute the plan and closely monitor the results.
4. Make incremental changes to your plan until it reliably produces the results you want to achieve.
5. Take your internal temperature. Gauge your emotions. Can you trade these signals and play the probabilities for gain vs loss laid out in your system. You must have confidence in your system and the mental fortitude to play it.

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If you learn to make your losses work for you, they can become your ally, not your enemy. Last time we talked about loss and how it can galvanize you to refine your system and improve your approach, setting you up for success as a futures trader. It’s like they say in sports, “No pain, no gain.” Loss motivates you to learn.

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