Clerks in the Euro Dollar Futures pit at the Chicago Mercantile Exchange trade after the news that interest rates will remain the same Tuesday Sep. 16, 2003. The Fed said that the low rates, currently at a 45-year low, "can be maintained for a considerable period." (AP Photo/Anne Ryan)
Enjoying success in futures, options, forex, and equity trading requires a collection of unique attributes. And, although “buying low and selling high” (or vice versa) might sound easy, doing so over the long run is a major accomplishment. In fact, many traders spend huge sums of money and years pursuing this goal before finally quitting the markets altogether.
However, if you become familiar with a few basic tenets of active trading, achieving longevity in the marketplace is possible. Read on to learn tips vital for building a rock-solid trading foundation.
Tip No. 1: Go with the Flow
Although “the trend is your friend” is often considered a cliché, it is still great advice. However, despite the winning track records of countless trend followers, many traders choose to adopt contrarian strategies. After all, if most people lose at trading, isn’t the crowd always wrong?
Unfortunately, it doesn’t work that way. At any given time, the markets feature a vast array of participants; experts, newbies, retail traders, and institutional investors are a few examples. The bottom line is this: If a market is trending, it means that there is disequilibrium between buyers and sellers―nothing more. Who is to say that the so-called “smart money” isn’t driving the trend at the expense of novice, unsophisticated traders?
Ultimately, the market is never wrong. If an asset’s price is trending, then there is a good reason. No matter if you’re talking about forex, futures, or equity trading, there is more money to be made following trends than fighting them.
Tip No. 2: Discipline Is Invaluable
If you take a look at the attributes of successful traders and investors, discipline almost always tops the list. Long-run winners understand that impulse kills profits—an issue that stems directly from human psychology.
One of the great things about active trading is that discipline can be learned. If you’re emotional and impulsive in other areas of life (and who isn’t!), it doesn’t have to carry over into your trading. These two basic rules all but eliminate the negative impacts of impulse in the markets:
Have a plan: A comprehensive trading plan is a detailed schematic that defines how you’re going to attack the markets. The plan outlines trade selection, open position management, risk management, and money management.
Stick to the plan: Once your comprehensive plan is in place, it is imperative that you stick to it―no matter what.
Adhering to a comprehensive plan removes most of the guesswork from forex, futures, and equity trading. Pitfalls such as overtrading, rumor-based trading, chasing losses, and adding to negative positions are eliminated. This creates an ideal mindset for quickly cutting off losers while letting winners run.
Tip No. 3: Patience Is a Virtue
At any given time, a trader may take three actions: buy, sell, or wait. In many cases, choosing to wait creates much more value than placing an ill-advised buy or sell order. As it pertains to active trading, less is often more.
Aside from order execution, patience plays a key role in three crucial areas of successful futures, forex, and equity trading:
Finding a strong brokerage service
Acquiring enough capital to fund trading operations
Achieving your financial objectives
Realistically, it can take weeks, months, or years to save enough money to engage the markets from a position of strength. And, although choosing the right broker may not take as long, it will take some time before everyone is on the same page. Finally, reaching your financial objectives is an ongoing endeavor that will require patience, persistence, and dedication.