Sept 29: The Online Futures Trading Success Checklist: Are You Making This Common Trading Mistake

by David Jenyns on September 29, 2005

If I gave you the perfect system with the perfect money management in place, the only thing that would stand between you and success in online futures trading are your own thoughts and feelings.

Why do I say this? Because online futures trading often feels like having an increased sense of confidence when being involved in a Futures trade selection, either by finding the perfect indicator, or by finding the perfect entry point. At times, in Futures trading, you feel, quite mistakenly, that you are in control of the market.

In a fantastic book, called Trade Your Way to Financial Freedom by Dr. Van Tharp, Dr. Tharp relates this misplaced sense of confidence to what`s known as the Lotto Bias. Online futures` trading is the perfect illustration of the way this feeling of control works. Just look at a Lotto game.

When you play Lotto, you get to pick your own numbers, usually six or seven. If all those numbers happen to be drawn, you become an instant millionaire. You really like to play the Lotto, even those who logically understand the odds. Why? Because the prize is so big, and the risk is so small.

Dr. Tharp explains the Lotto Bias is like an illusion of being in control. You get an illusion of control because you get to pick the numbers on your ticket. Choosing your own numbers makes you feel that the odds of success are somehow improved. As a result, you feel that if you pick the numbers of your birthday or anniversary, it improves the chances of winning. The truth of the matter is that any number you choose is as likely to win as any other number.

You can get a similar false sense of control when involved in online futures trading. This often happens when entry signals are used as the points at which you choose to enter the market. This is when you belive that your online futures trading is doing exactly what you want it to. This can give you a sense that you have some sort of control, not over the entry, but over the market. Unfortunately, once you`re in a position in the market, the market will do whatever it wants to do. The only component you have control over is your money management and your own psychology.

If, somehow, you did find the perfect indicator, the one that got you in at the exact bottom and got you out at the very top of the trend even if you did find that, your gain is not when you buy the Futures trade or when you sell the trade. What determines how much money you make is how much you actually put into your online futures trading.

For example, let`s say that I had a system that gives me a buy signal for a particular Futures trade. Let`s call it XYZ. Now, I received a buy signal at one dollar. After following this trade, I get a second signal to exit the trade. I exit the trade at two dollars.

Now, if I bought at one dollar and then sold at two dollars, I`ve made one dollar or 100% profit, haven`t I? But, what determines how much money I actually made on this particular trade? How much money I put into the Futures trade.

Now, of course, I`m just talking about the long side in this example. The same principals apply to losing in online futures trading.. If I entered into a losing online futures trading position, it`s not actually when I purchased the Futures trade or when I sold the Futures trade that determines how much money I lose. That is determined by how much money I put into the online futures trading position..

It sounds rather elementary, doesn`t it? But, you are like many traders; you spend your time focusing on entry rather than on money management. It relates back to your need to be in control. It`s as if you feel you have to have the ability to manipulate the data, somehow, in a way that gives you control over the market. This is why you believe that by finding the perfect entry you will control the market.

If you ask anybody who`s studied trading for a while, they`ll tell you that a practical mind-set is the most important component to be a successful trader. You need to have the common sense to know you can`t control the market, and the discipline to be able to follow the system you have in place. These two traits ensure that you will be successful in your online futures trading. Once you have these qualities, create your system and construct good money management rules, because they are the only things that you have control over when you are doing your online futures trading.

David Jenyns is recognized as the leading expert when it
comes to designing profitable trading systems.

His most recent course Trading Secrets Revealed is a step-
by-step trading roadmap to having excellent money management.
Learn how *you* can become one of his students.
Click Here ==>

Receive David’s free trading tips by signing up for his eZine
at: ==>

< ---------- END OF ARTICLE ---------->

** Attn Ezine editors / Site owners **

Feel free to reprint this article in your investment
newsletter or web site in its entirety so long as you
leave all links in place, do not modify the content
and include our resource box as listed above.


{ 0 comments… add one now }

Previous post:

Next post: