Last Updated on October 5, 2023
Futures trading provides various opportunities for potential profits. However, it has its share of risks that you should learn to minimize while navigating the market.
Winning on your first trade feels good, but it often makes you overconfident, leading to losses on later trades. On the other hand, starting with a bad trade can completely discourage you if you let emotions take control.
This article will provide some tips and strategies to help you improve your trading performance and minimize potential losses.
1. Have a Good Plan in Place
Before you open a position, you need to plan your trades carefully. You can do this by having a profit objective and putting an exit plan in place if the trade goes against you.
The aim is to minimize the chance of being forced to make critical decisions on the spot while actively trading with money at risk. This will prevent emotions such as fear and greed from influencing your actions, making you hold onto unprofitable positions or exit lucrative ones prematurely.
2. Study the Charts Before Entering a Trade
Staying attuned to the price movements and recent and long-term support and resistance levels is essential. It allows you to execute trades that use these levels and avoid trades that ignore the rebounds/breakthroughs they might cause.
3. Avoid Highly Unclear Situations
The market is never crystal clear, that is for sure. However, if multiple indicators show conflicting signals, it might be better not to act at all. Why enter a trade you are unsure of? Many good opportunities will present themselves clearly, so it might be better to wait for them.
4. Be Open to New Ideas
The financial market is constantly changing, and no matter how experienced you are, there will always be a new strategy or trading opportunity that you might have never heard of.
You can never know enough in this market, so keep learning. Make sure to remain open to new ideas to increase your profit potential.
5. Be Patient
If you realize you may have missed out on a good opportunity, resist the urge to jump on it at the last minute due to the fear of missing out (FOMO). It will be like trying to jump onto a moving train. Instead, focus on improving your timing when the next opportunity comes along.
Patience is the hallmark of successful futures trading. Avoid becoming overly engrossed in market fluctuations, thereby losing sight of the bigger picture. While keeping an eye on the market and trends is recommended, do not be fixated on every slight market fluctuation to avoid driving yourself crazy.
6. Utilize Stop Loss Orders
Traders often hope that their losing trade will turn around, but this can lead to the wiping out of the entire account balance. Stop losses prevent you from sticking to a flawed plan. They can protect your capital to ensure you are well-positioned for the next profitable trade. Accepting losses swiftly and entering other trades might yield better returns.
7. Do Not Deviate From Your Established System
One strategy successful futures traders use is that when they put a system in place, they stick to it. You should do the same. Do not let your emotions make you abandon your system.
It would help to be firm once you commit to an exit strategy before trading. However, remember that a stop order is not a guarantee to eliminate losses but will help minimize them.
8. Control Your Emotions
Managing and controlling emotions is a recurring theme in this article, but it is often easier said than done. Sometimes, your emotion gets the better part of you while you are already in a trade. At that moment, consider closing your losing positions and regaining your composure.
This advice pertains to both emotional reactions caused by trading and those triggered by unexpected life events. Incorporate emotional control practices such as a few minutes of meditation before trading.
9. Stay Focused
Futures trading requires you to be focused on evaluating the markets effectively. Even though it is natural to be distracted occasionally, you should find a way to reduce it.
Additionally, try to trade only a few markets at the same time. You need to study charts, keep up with the news and market commentary to succeed in futures trading.
10. Manage Risk With Appropriate Position Sizes
Constantly putting your whole account on the line can wipe the balance to zero. Limit your trades to a small percentage of your balance – risk 1% to 3% on a single trade.
Position sizing strategies allow your trading skill to shine over time, enabling you to recover from losses. It also naturally makes trading more exciting as you profit since your position sizes will keep growing.
11. Embrace Both Long and Short Perspectives
Trading opportunities emerge in both rising and falling markets. While your instinct might suggest you go long, dismissing the option to go short might restrict your trading opportunities.
12. Utilize Knowledge From Margin Calls
When you are faced with a margin call, it is likely because you prolonged a losing trade. Therefore, treat a margin shortfall as evidence that shows you are emotionally attached to an unsuccessful position. Instead of injecting more funds to fulfill the call or reducing your open positions to a lower margin, consider exiting the unprofitable position completely.
See also: How To Trade Futures – The Complete Step-By-Step Guide
13. Moderate Your Trading Approach
Newcomers to the world of futures trading should be cautious. Diving into trading five or ten contracts from the jump is not prudent. Do not make the typical beginner’s mistake of using all the money in your account to purchase or sell a big number of futures contracts.
Start your journey gradually with one or two contracts. Use it as an opportunity to develop your trading technique without the pressure of managing bigger positions. Then as you go, modify your approach and consider scaling up your order size.
You may also like: How Much Money Do You Need to Start Trading Futures?
14. Be Discerning in Your Trade
Following a loss, it is natural to attempt to recover lost profits hastily. This is called revenge trading.
Being disciplined in the face of setbacks is an essential skill a futures trader should develop. You can achieve this by focusing on the finest trade setups that align with your strategy, utilizing simulation, and temporarily stepping away from active trading.
15. Trade When You Are Feeling Like It
It might seem obvious, but trading when you are not at your best is a terrible idea. You should be well-fed, hydrated, and well-rested before you start trading.
If you feel unwell, hungry, or hungover, consider stepping away for the day. You need your mind to be bright and clear.
To Wrap Up
The futures trading techniques above will help minimize losses, improve decision-making, and facilitate higher trading efficiency. By embracing a disciplined approach, you can navigate the complex futures trading landscape and enjoy enduring success.
