Making practice trades allows you to:

• Test and fine tune your trading system.
• Learn to successfully pull the trigger.
• Perfect your charting system.
• Develop productive trading habits.
• Practice self discipline.
• See if you have what it takes to be a futures trader.

That last item is very important. You can have the best system in the world but if you don’t believe in yourself, if you don’t believe in your system, if you don’t have the passion to trade, no system in the world will make you a successful futures trader. Like I tell my students, successful futures trading is 90% attitude. Not everyone has the skill, passion, ability or discipline to succeed. Better to find out before you lose your money.

In my Futures Trading Secrets course I recommend that students practice trading on the e-Mini with Sims Broker until they achieve a certain level of confidence and consistency in their trades. Log and study your profits and losses. Look for patterns that indicate when you successfully pulled the trigger and when you failed. Work to increase successful strategies and decrease unsuccessful ones.

Develop successful daily trading habits and routines. Practice the discipline to stick to them even when you don’t feel like it or they don’t seem to be working. Discipline and routine are essential habits of the successful futures trader. Every trader loses sometimes. You have to have the discipline to follow your routine and have faith in your system even when you’re losing if you are to ultimately succeed.

Practicing futures trading on paper is important before you attempt the real thing. Before you start trading with real money, you must develop the discipline to control your emotions and stick to your system. Plunking down cold, hard cash opens the door to greed and fear which can submarine even the best system if not held in check. Practice will give you the skill, confidence and courage to succeed as a futures trader.

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Mental stop loss. When you set a mental stop loss, you tell yourself, when the market reaches this price, I will sell.  Mental stop losses must be decided before you enter the actual position.  To minimize your loss, you determine your exit strategy before you start to trade. Now comes the hard part. When the market reaches your predetermined price, you must have the personal discipline to obey your mental stop loss and quickly cut your losses.

The benefit of using a mental stop loss over a physical one is that only you know that you are using a stop loss and what your stop price is. What other market players don’t know can’t hurt you. You don’t want to be forced out of position before you’re ready. But mental stop losses require extreme self discipline. You also have to watch the market continually so you know when to execute your stop loss. If you can’t force yourself to get out at your predetermined price, or if you are unable to track prices on your positions throughout the day, mental stop losses are useless to you.

Physical stop loss. A physical stop loss is a stop limit order you place with your broker. If the market reaches a specific price, your broker will sell automatically. There are two kinds of physical stop loss orders: stop limit and stop market.

• Stop limit. Once the market reaches your stop loss price, a stop limit order will be placed to sell at your specified price or better. The advantage is you’ll get a better price. The disadvantage is that your order is based on a specific price. If the market declines quickly, it may plummet below your stop limit and your sell order may never be executed.
• Stop market.  A stop market order is preferred for its greater reliability. In a stop market order, when your stop loss price is reached, your sell order becomes a market order and must be executed at the next price. You may lose a fraction more than you planned on, but it’s less risky than the loss you could be saddled with if your stop limit order is never filled.

Determining where to set your stop loss depends on the individual trader’s risk tolerance. You must decide for yourself the amount of risk you can afford and that you’re comfortable taking. Successful futures traders must learn when to cut their losses and move on to the next opportunity.