Commodity Futures Trading for Beginners

By Bruce Babcock

Separating the Winners and Losers

A very high percentage of those who try commodity trading eventually lose money. The ratio of losers could be as high as ninety-five percent. However, this does not necessarily mean that your chance of failure is that high. If, before you begin, you identify correctly the reasons most people lose, you can improve your odds significantly.

There is a small percentage of full-time professionals and highly skilled part-time traders who have learned how to trade correctly and generate consistent profits year after year. It is not impossible to determine what separates these people from the crowd.

Because trading well is not easy, you must approach the task very seriously. This is not something to treat as a hobby. Perhaps, first and foremost, this is what separates professionals from amateurs. Professionals look at their trading as a business. There are substantial profits to be made, and they will not just fall into your lap.

Another crucial difference between successful and unsuccessful traders is that the successful ones have a plan and they follow it. Considering the amount of money involved and the potential risks, it is remarkable how few traders actually have any kind of plan for their trading. They go from trade to trade applying various ideas they have learned without any consistency and without any testing. They make decisions based on hot tips, something they read, today's news. They are acting from emotion rather than using a proven methodology. While they may not want to admit it, they are really gambling in the futures markets rather than trading intelligently.

Trading by emotion in an unstructured way certainly adds fun and entertainment to the enterprise. Taking positions on instinct is exciting, especially when they work out . . . as they often do. But in the end, this kind of trading will lose money.

Good trading is boring because you've thought out your strategy and tactics in advance. You trade according to a carefully tested system or method, not from what moves you emotionally that day.

Two psychological traits that separate winners from losers are patience and discipline. It is not enough to have a carefully tested trading plan. You must also be able to follow it religiously. This is not as easy as you may think. Every experienced trader knows how great the temptation is to stray from the plan. There is always what seems to be a good reason. The true professional can resist this temptation and stick to his plan. He has the patience to wait for his method to signal a trade and not take trades he may be emotionally attracted to that are outside his plan. He has the discipline to follow his plan and take all the trades that it signals even when there appear to be strong reasons to make an exception.

This may sound easy, but when real money is on the line--your money--nothing is more difficult. The kind of trading that really works is emotionally demanding.

It is hard work to create a winning trading plan. It is hard psychologically to follow the plan after you
create it. This is why so many people fail. Perhaps you have what it takes to be an exception.

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TRADING IN COMMODITY FUTURES OR OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

[ CFTC RISK STATEMENT ]

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