January 26, 2006




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Name: Jovanka Vukosavljevic
Company: Alaron Trading
Years Trading: 19
Favorite Movie: Rear Window

Common Trading Mistakes

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Common Trading Mistakes

I'd like to discuss some of the common mistakes of the commodity futures trader. The first and foremost is not having a clear cut plan in their heads of what they want to achieve. Of course, everyone wants to make money, that's a given, but the way most conduct themselves trading, would leave the seasoned trader to think otherwise. The first thing a trader should do once in the market is place a stop. Know how much you would be willing to lose in a specific trade and if it is not going your way then place a stop to protect your position. If you're long a March Corn from 2.08 even a bushel, each time the market moves a penny its worth $50.00, so to protect yourself 10 cents on the downside, your stop is at 1.98 and you are risking $500.00 in this market.

The second mistake traders make is often not taking profits when presented with them. In other words, if the corn markets moves up to $2.14 that's a 6 cent profit of $300.00. The trader could get out of the corn market take his profit off the table and always get back in when presented another opportunity. So if the trader is holding onto to five contracts or positions in the March Corn for example, that could translate into $1,500.00. The third mistake is not moving the stop up however much the market moves in his or her favor. In this instance if the March Corn settles at $2.14 a bushel it has moved up 6 cents higher from the entry point of $2.08 a bushel the trader should move his or her stop at least 6 cents higher that price would then be $2.04 to protect his position. They are still 10 cents away from the market price and they are risking the same amount of money $500.00 but they are tightening their stop in accordance with the market's fluctuations of the March Corn market. Again, I want to reiterate if they get nervous they can always close out their position and pay themselves what they made.




Another common problem or mistake that traders make is taking small profits and letting losses run. This is the result of having no strategy or game plan in mind. New traders are very apt to take a small profit after losing one or two trades the first few times they trade the market; even though that small profit could have turned into a large profit that could have offset all their losses.
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New and professional traders alike sometimes have a tendency to let their losses run, after entering a market, they don't know when to get out. Once they start losing money, traders tend to live on hope that the market will retrace to let you break even and that's how their losses get larger and larger, since the market seldom comes back or retraces to let you break even. The way to overcome this problem is by using predetermined stops to prevent your losses from bleeding your account and having a plan to take profits at your objective.

Overstaying your position or simply failing to take profits at a predetermined level is another very common problem that most traders make. If the market meets your profit objective and you are still in the market without closing your position, you are courting disaster by overstaying your position. Very often the market can break sharply if you have no stop or profit taker order in there. You will then watch your paper profits disappear right before your eyes. This problem is simply solved by trailing a working stop that's raised closer to the market as your price is approached.

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Meeting margin calls is another common problem traders often make. Most often meeting a margin call will increase your loss, therefore you should just get out of the market. A margin call means you are on the wrong side of the market and your position should be closed out.
Margin calls are met because traders do not want to admit that they are wrong and take a loss. They hope the market will eventually come back in their direction and then they can get out. This is all due to having no idea what the market will do and poor money management.

Another common problem traders encounter is overtrading their account. This simply means they are risking a too large percentage of their equity on any single trade either with too large a dollar risk per contract or by trading too many contracts. This can happen when traders get overconfident when they have had some success in the markets and they know that the market is going to make a move in one direction or another. Say for example like Gold has done here recently, so you risk more much more than your account can handle like buying 5 contracts of Gold instead of say 2 contracts thereby putting your account in jeopardy. Already emotionally you are out of balance and all it takes is a couple of big moves in the Gold and you are out a huge amount of cash.

Changing your strategy during market hours is another common problem traders make. During the trading day they are subject to emotional reactions of fear and greed much more than when the market is closed. My clients have told me that at night when they go over their trades they have figured out what they did wrong, but when the market opens in the morning they do exactly the opposite of what they had planned. The best way to deal with this in not to change your trading strategy during market hours unless there is an unexpected news or market reaction


The fourth mistake is moving their stop down if the market starts moving down and is about to fill their stop and they then move the stop further down thereby not letting the market take them out and realizing their loss. By doing this, the trader has abandoned his or her strategy they started with in the beginning making their trading loss greater than they had intended. They then are living in a bubble not seeing the reality of this market, maybe the trend is lower and if so they are doomed to lose more money then they wanted. They have now become emotional and paralyzed traders instead of rational and cautious traders.
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I am now in my fourth year as a trading mentor at Alaron's Futures Training Division where I spend a great deal of time helping others help themselves. Whether they are beginners looking to learn the basics of trading or seasoned professionals who request assistance with a new market or trading style, system and/or methodology.

In conclusion, I want to say that these mistakes are very common and costly but they can be rectified if traders realized and worked their strategies out beforehand. By having a clear cut goal in mind and being persistent and following and dealing with the market in a pragmatic manner they will realize their gains and alleviate their losses in the marketplace. By following a plan of action, and not deviating from it will make you a more savvy and happier trader.

Need a Mentor in the Futures Market?

Alaron's Futures Training Division has developed the Mentor Program for beginners and seasoned traders alike. Receive:

  • 24-hour real-time quotes
  • Complimentary charts, newsletters & analyst reports
  • Futures Webinars
  • & much more...

This service is complimentary on an unlimited basis for all clients of the Futures Training Division. Gain access to traders that have been helping clients for more than a decade! Go here to take advantage of this exclusive offer.


About Today's Author
I started out in this business by accident, but you can say that it was God sent. I started out running in the grain pits with Saul Stone and ever since then I have been fascinated the way trading is conducted in the pits, you can feel the energy and excitement of the raw entrepreneur spirit. I would plot the movements of the corn and soybeans on a daily basis. By the end of the week I would see a pattern developing in the corn and bean markets that was beginning of learning how to trade technically; of course on report day when USDA came out with their numbers esp. crop production it always made you realize you couldn't always rely on the technicals to give you a whole picture of the markets. You had to take into account the fundamentals like supply and demand, crop production and exports.

I took that knowledge with me and have applied it trading a myriad other markets, the principles seem to hold up time and time again. I come from a humble farming background so I can say that I favor the grains because of the understanding I have gleaned watching my mom and dad farm corn, wheat and soybeans. Knowing how hard the farmers work makes me appreciate the futures markets, there they can hedge their losses they may incur in farming and hopefully make some profits in the futures markets.

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