As much as the commodity futures market can earn you good money and in an easy way, on the other hand, you can easily fall into the market’s trading pitfalls. Apparently a big number of those who lose in this market display some common trading characteristics. If you have to be among those who benefit in this trade, you need to avoid the common mistakes, which are made by about 80 to 95% of those who trade in futures market. Some of these mistakes are;
• Lack if an in-depth training on the market
• Over leveraging in commodity trading
• Poor account equity management
• Lack of a concise commodity trading plan
If you plan to trade in commodity futures market, you do not have to be the best trader but it is important that you acquire fundamental knowledge and skills on how this market trade works. What this means is that you have to gain more knowledge other than the typical futures margins, contract sizes, ticker symbols, or entering and exiting an order position.
The good thing is that there are many resource books, which you may read and can help you trade wisely. In this trade, you are competing with some of the most professional traders in the market who have a wealth of experience. You have to remain focused and follow the strategies which have been applied by others that have succeeded in the trade.
Moreover, many traders fall in the trap of poor leveraging strategy. You need to leverage between what you can lose and what you can gain. The most impacting part is the losing trade. When you enter into a contract that risks your entire account, you could easily lose all your money with just a couple of losing positions.
It is therefore important not to risk your account with one trading position. In addition, you should not trade in contracts, which are too large for your account. You need to watch on the contract size you are trading in.
Managing your account becomes a challenge for many people who trade in futures commodity market. This happens because many traders want to gain big money so fast not realizing that a wrong move could leave their accounts wiped out completely. You should not risk more than 5% of your account in just a single trade position. You can leverage your risk to about 2% on one trade.
However, this becomes a challenge especially when you find that you are trading in profit. Since you want to maximize your profits, you end up risking more so that you earn more. What happens is that in the event the market prices shifts somewhere down the line in your trade, you suffer greatly.
However, you can manage this aspect by placing stop loss orders away from your entry so that you are safeguarded from huge losses should the market prices shift against your trade. A plan is essential in order to monitor your trading. However, many traders trade blindfolded without any plan and this means that they are prone to making erratic trading mistakes that cost them dearly. The plan may entail the markets, which you will trade.
The contract size you have to use as a well as your exit and entry strategies may also be featured in the plan. In addition, your plan has to feature the stop loss order strategies that you apply in any given trade. The risk management strategies are also included in this plan. With this tool, you are able to trade carefully and reduce risks, which face most of the traders.
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