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Disclosure Statement
Futures and options trading involves substantial risk of
loss and is not suitable for all investors. Clients may
lose more than their initial investment.
Past performance is not indicative of future results.
1. Many futures traders trade without a plan. They do not
define specific risk and profit objectives before trading.
Even if they establish a plan, they "second guess"
it and don't stick to it, particularly if the trade is a
loss. Consequently, they overtrade and use their equity
to the limit (are undercapitalized), which puts them in
a squeeze and forces them to liquidate positions.
2. Usually they liquidate the good trades and keep the
bad ones. Many traders don't realize the news they hear
and read has, in many cases, already been discounted by
the market.
3. After several profitable trades, many speculators become
wild and give up being conservative. They base their trades
on hunches and long shots, rather than sound fundamental
and technical reasoning, or put their money into one deal
that "can't fail."
4. Traders often try to carry too big a position with too
little capital, and trade too frequently for the size of
the account.
5. Some traders try to "beat the market" by day-trading,
nervous scalping, and getting greedy.
6. They fail to pre-define risk, add to a losing position,
and fail to use stop loss.
7. They frequently have a directional bias; for example,
always wanting to be long.
8. Lack of experience in the market causes many traders
to become emotionally and/or financially committed to one
trade, and unwilling or unable to take a loss. They may
be unable to admit they have made a mistake, or they look
at the market in too short a timeframe.
9. They overtrade.
10. Many traders can't (or don't) take the small losses.
They often stick with a loser until it really hurts, then
take the loss. This is an undisciplined approach...a trader
needs to develop and stick with a system.
11. Many traders get a fundamental case and hang onto it,
even after the market technically turns. Only believe fundamentals
as long as the technical signals follow. Both must agree.
12. Many traders break a cardinal rule: "Cut losses
short. Let profits run."
13. Many people trade with their hearts instead of their
heads. For some traders, adversity (or success) distorts
judgment. That’s why they should have a plan first,
and stick to it.
14. Often traders have bad timing, and not enough capital
to survive the shake out.
15. Too many traders perceive futures markets as an intuitive
arena. The inability to distinguish between price fluctuations
which reflect a fundamental change and those which represent
an interim change often causes losses.
16. Not following a disciplined trading program leads to
accepting large losses and small profits. Many traders do
not define offensive and defensive plans when an initial
position is taken.
17. Emotion makes many traders hold a loser too long. Many
traders don't discipline themselves to take small losses
and big gains.
18. Too many traders are under financed, and get washed
out at the extremes.
19. Greed causes some traders to allow profits to dwindle
into losses while hoping for larger profits. This is really
lack of discipline. Also, having too many trades on at one
time and overtrading for the amount of capital involved
can stem from greed.
20. Trying to trade inactive markets is dangerous.
21. Taking too big a risk with too little profit potential
is a sure way to losses.
22. Usually they liquidate the good trades and keep the
bad ones. Many traders don't realize the news they hear
and read has, in many cases, already been discounted by
the market.
23. Often, traders do not recognize the difference between
trading markets and trending markets.
24. Lack of discipline includes several lesser items; I.e.,
impatience, need for action, etc. Also, many traders are
unable to take a loss and do it quickly.
25. Trading against the trend, especially without reasonable
stops, and insufficient capital to trade with and/or improper
money management are major causes of large losses in the
futures markets; however, a large capital base alone does
not guarantee success.
26. They fail to pre-define risk, add to a losing position,
and fail to use stops.
27. Trading very speculative commodities is a frequent
mistake.
28. There is a striking inability to stay with winners.
Most traders are too willing to take small profits and,
therefore, miss out on big profits. Another problem is undercapitalization;
small accounts can't diversify, and can't use valid stops.
29. Some traders are on an ego trip and won't take advice
from another person; any trade must be their idea.
30. Many traders have the habit of not cutting losses fast,
and getting out of winners too soon. It sounds simple, but
it takes discipline to trade correctly. This is hard whether
you're losing or winning.
31. Futures traders tend to have no discipline, no plan,
and no patience. They overtrade and can't wait for the right
opportunity. Instead, they seem compelled to trade every
rumor.
32. Staying with a losing position, because a trader's
information (or worse yet, intuition) indicates the deteriorating
market is only a temporary situation, can lead to large
losses.
33. Lack of risk capital in the market means inadequate
capital for diversification and staying power in the market.
34. Some speculators don't have the temperament to accept
small losses in a trade, or the patience to let winners
ride.
35. Greed, as evidenced by trying to pick tops or bottoms,
is a frequent error.
36. Not having a trading plan results in a lack of money
management. Then, when too much ego gets involved, the result
is emotional trading.
37. Frequently, traders judge markets on the local situation
only, rather than taking the worldwide situation into account.
38. Speculators allow emotions to overcome intelligence
when markets are going for them or against them. They do
not have a plan and follow it. A good plan must include
defense points (stops).
39. Some traders are not willing to believe price action,
and thus trade contrary to the trend.
40. Many speculators trade only one commodity.
41. Getting out of a rallying commodity too quickly, or
holding losers too long results in losses.
42. Trading against the trend is a common mistake. This
may result from overtrading, too many day-trades, and undercapitalization,
accentuated by failure to use a money management approach
to trading futures.
43. Often, traders jump into a market based on a story
in the morning paper; the market many times has already
discounted the information.
44. Lack of self-discipline on the part of the trader and/or
broker creates losses.
45. Traders don't clearly identify and then adhere to risk
parameters; I.e., stops.
46. Most traders overtrade without doing enough research.
They take too many positions with too little information.
They do a lot of day-trading for which they are undermargined;
thus, they are unable to accept small losses.
47. Many speculators use "conventional wisdom"
which is either "local," or "old news"
to the market. They take small profits, not riding gains
as they should, and tend to stay with losing positions.
Most traders do not spend enough time and effort analyzing
the market, and/or analyzing their own emotional make-up.
48. Too many traders do not apply money management techniques.
They have no discipline, no plan. Many also overstay when
the market goes against them, and won't limit their losses.
49. Many traders are undercapitalized. They trade positions
too large, relative to their available capital. They are
not flexible enough to change their minds or opinions when
the trend is clearly against them. They don't have a good
battle plan and the courage to stick to it.
Contained above are fifty rules from more than a thousand
brokers who have handled more than 20,000 accounts. They’ve
seen what worked, what didn’t, and why. Following these
rules will not necessarily lead to success. Breaking them
could increase your chances of failure. Futures trading
is not for everyone. Futures trading involves the risk of
loss.
SOURCE: The Walsh Agency, Inc.
Disclaimer: There is a
risk of loss when trading futures.
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