Many traders struggle trade execution; they don’t consistent pulling the trigger when their setups occur. They can find many reasons why they did not put the trade in before price got there. And once price leaves their zone they get this urge of chasing the market. Once they chase the price after it has already moved away from their zone they make the biggest mistake of all and put in a very close protective stop to the current price action. Within minutes price has stopped them out of their trade and the market resumes in their intended direction without them.
If it does, don’t feel alone. Part of the problem for being so late into the trade is possibly a lack of confidence, too small of a trading account, fear of being wrong and your ego reminding you of that, or perhaps not having a defined trading plan to follow.
Perhaps you have a trading plan, but you do not follow it like you should because you never really got into the habit of doing so.
This is where perfection comes in to play for traders. So many times novice traders setup trades with more focus on the outcome rather than the actual trade execution.
Here is a quote you might want to print out and paste near your trading desk so you can see it before you take each trade.
“Perfect your execution of the trade and don’t try to perfect the results of the trade.”
Why do so many traders fail even if they have a trading plan? The fear of losing and the fear of risking more than 1% of your account balance on any one trade. Both of these fears are a result of focusing on the results more than on your trade execution.
When a trader is starting out and they make a lot of money they don’t see the risk they are taking, they only see the rewards. Unfortunately we all have losing trades. And to make larger rewards generally takes larger risk which most novice traders should not do.
Trading our Futures markets today requires discipline and plenty of working capital to trade the full size contracts. The volatility is higher today than it has been in most of our markets. To a professional trader this creates opportunity, to a novice trader it could create ruin.
If a trader takes a trade in a market and uses a bigger stop than they are comfortable with they will be using emotions to make their decisions. The fear of losing a lot of money will not let them follow their trading plan.
One of the ways a Futures trader can practice execution of their trading plan and still have a little risk in the game is to trade a smaller contract of the market they usually trade. Unfortunately not all mini and micro markets have good liquidity. I have written recently about considering these markets to have smaller risk:
Practice with small futures contracts to ease the fear of making losing trades
These are just a few that are available to trade. Once a trader has a written trading plan and has practiced on the simulator for a little while, they are then ready to try live trading. But instead of trading markets that have very large stops try practicing your trade execution using these smaller Futures contracts. Obviously the risk is less, but that also means the rewards are less.
The process of starting out with smaller Futures markets to trade is not to make a lot of money. It is about following your trading plan precisely as it is written. Without the excessive risk you will find the fear of loss not an issue and you will find it easier to set and forget your trades. Trade management will now be done methodically and not emotionally.
Trading is a probabilities business. One loss or one win does not define a trader. It takes a series of trades in which the trading plan is followed consistently before a trader is able to say they are ready have the ability to trade like a professional trader.
Once you have proven that you have the discipline to follow your own rules consistently, you can then consider trading the larger Futures contracts. But this time you will be more prepared on how to handle your trades and you won’t find yourself chasing markets like you used to. Proper trade execution is the key.
“The two most important days in your life are the day you are born and the day you find out why.” Mark Twain
Written by Don Dawson, Online Trading Academy Instructor. Don has been trading the futures markets since 1987. Students who want to learn how to invest or day trade find his futures courses at Online Trading Academy invaluable, and he shares the same knowledge about where to invest money in his Lessons from the Pros articles. Don obtained his series 3 license in 1990. Soon afterwards he registered as a Commodity Trading Advisor with the National Futures Association and formed his company Majestic Futures. He has been a guest speaker on Technical Analysis at Johns Hopkins University and a guest speaker on the Business of Trading Radio Show in Washington, DC.