50 Reasons Why Most Futures Traders Lose Money

Reasons 1-10
1. Many futures traders trade without a plan. They fail to define specific risk and profit objectives before entering the market. Even if they establish a plan, they tend to "second guess" it and don't stick to it, particularly if the trade becomes a loser. Consequently, they overtrade and use their equity to the limit, which puts them in a squeeze and forces them to liquidate positions. Usually, they liquidate the good trades and keep the bad ones.

2. Many traders don't realize the news they hear and read has, in many cases, already been figured into market prices.

3. After several profitable trades, many speculators become wild and reckless. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put too much of their money into one trade that "can't fail." If the trade does fail, they can wipe out their entire trading accounts.

4. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account. Essentially, they're impatient and undercapitalized. It's far better to begin slowly, and develop a trading methodology, without too much money at risk initially.

5. Some traders try to "beat the market" by day trading, nervous scalping, and getting greedy. They overtrade and usually end up whipsawing themselves in the market.

6. They fail to pre-define risk, add to a losing position, and fail to use stops. Trailing stops, in particular (which are offered by XPRESSTRADE), are an important risk management tool used by many successful traders. Essentially, the stop price adjusts automatically as the market moves in your favor, so that your profits are allowed to run, but you always have protection. 

7. They frequently have a directional bias; for example, always wanting to be long. With futures, remember, it's just as easy to sell ("go short") as it is to buy ("go long"). You can go short before you go long!

8. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake. Or they use the markets too feed their need for excitement, an almost sure way to lose.

9. They overtrade. When you don't see a good opportunity in the markets, don't trade simply for the sake of trading. Keep doing your homework, and try to identify a real opportunity.

10. Many traders can't (or don't) take the small losses. They often stick with a loser until it really hurts, then take the big loss. This is an undisciplined approach; a trader needs to develop and stick with a plan.

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Reasons 11-20
11. Many traders get a fundamental case and hang onto it, even after the market technically turns. Only believe fundamentals as long as the technical signals follow. Both must agree.

12. Many traders break a cardinal rule: "Cut losses short; let profits run." Too many traders allow losses to grow large, yet they exit winning trades too quickly. This is a sure recipe for failure.

13. Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That's why they should have a plan first, and stick to it.

14. Often traders have bad timing, and not enough capital to survive the shake out. It's not enough to be right in the end -- timing is everything. Have enough capital to ride out small moves against you, so that you can profit from the larger trend.

15. Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between price fluctuations that reflect a fundamental change and those that represent an interim change often causes losses.

16. Not following a disciplined trading program leads to accepting large losses and small profits. Many traders do not define offensive and defensive plans when an initial position is taken. Know what your profit objective is, and know what your risk management plan is -- before you establish a position in any market.

17. Emotion makes many traders hold a losing position far too long. Many traders don't discipline themselves to take small losses and big gains.

18. Too many traders are under-financed, and get washed out at the extremes.

19. Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits. This is really a lack of discipline -- you should have a profit objective in mind, and when the market reaches this price, close out the position and enjoy your reward. Also, having too many trades on at one time and overtrading for the amount of capital involved can stem from greed.

20. Trying to trade inactive markets is dangerous. In thinly traded, illiquid markets, the chances for manipulation increase, and your ability to exit your position at a fair price might be impeded.

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Reasons 21-30
21. Taking too big a risk with too little profit potential is a sure road to losses. Never enter a trade when the risk is greater than the profit potential -- that's just common sense.

22. Many traders lose by not taking losses in proportion to the size of their accounts. The old adage in futures trading is "Risk not thy whole wad" on a single trade.

23. Often, traders do not recognize the difference between trading markets and trending markets.

24. Lack of discipline is a major shortcoming. Lack of discipline includes several lesser items; i.e., impatience, need for action, etc. Also, many traders are unable to take a loss and do it quickly. It's important to realize that human nature makes it very difficult to admit when one's wrong -- this has to be overcome.

25. Trading against the trend, especially without reasonable stops, insufficient capital and/or improper money management are major causes of large losses in the futures markets; however, a large capital base alone does not guarantee success.

26. Overtrading is dangerous, and often stems from lack of planning. Oftentimes, a trader begins with a plan and trades methodically. But as time passes, the plan is abandoned, and undisciplined, excessive trading results.

27. Trading very speculative and/or thin markets is a common mistake. Illiquid markets are prone to sudden and dramatic moves, which can be devastating.

28. There is a striking inability to stay with winning positions. Most traders are too willing to take small profits and, therefore, miss out on big profits. Another problem is under-capitalization; small accounts can't diversify or use valid stops.

29. Some traders are on an ego trip and won't take advice from another person; every trade must be their idea. There's a wide range of futures market research, analysis, and commentary on the Internet (just at XPRESSTRADE, there are numerous resources, for instance). Read these materials, and use them to confirm or to cast doubt on your own ideas.

30. Many traders have the habit of not cutting losses fast and getting out of winners too soon. It sounds simple, but it takes discipline to trade correctly. This is hard whether you're losing or winning.

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Reasons 31-40
31. Many traders over-trade their accounts. Futures traders tend to have no discipline, no plan, and no patience. They over-trade and don't wait for the right opportunity. Instead, they seem compelled to trade every rumor. The old saying is absolutely true: "Sometimes, the best position you can have is no position at all." You don't always need to be in the market.

32. Staying with a losing position because a trader's information (or worse yet, intuition) indicates the deteriorating market is only a temporary situation.  This self-deception can lead to large losses. Learn to admit when you're wrong, and don't be afraid to throw in the towel on a losing trade. Regroup, and look for the next opportunity.

33. Lack of risk capital in the market means inadequate capital for diversification and staying power. Just because you have a $20,000 trading account doesn't necessarily mean you need to put on $20,000 worth of positions.

34. Some speculators don't have the temperament to accept small losses, or the patience to let winners ride.

35. Greed, as evidenced by trying to pick tops or bottoms, is a frequent error.

36. Not having a trading plan results in a lack of money management. Then, when too much ego gets involved, the result is emotional trading, rather than trading based on sound research and analysis. Check your ego at the door before trading.

37. Frequently, traders judge markets on the local situation only, rather than taking the worldwide situation into account. It's important to remember that all financial markets are increasingly global.

38. Speculators allow emotions to overcome intelligence when markets are going for them or against them. They don't have a plan to follow.  A good plan must always include defense points (stops) -- these are points at which your losses should be cut.

39. Some traders are not willing to believe price action, and thus trade contrary to the trend.

40. Many speculators trade only one commodity. Don't try to trade so many markets simultaneously that you can't properly follow the markets. But putting all of one's eggs into a single basket, so to speak, is foolhardy.

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Reasons 41-50
41. Getting out of a rallying commodity too quickly, and holding losers too long, is a trading methodology that surely will result in losses over time.

42. Trading against the trend is a common mistake. This may result from overtrading, too many day trades, and under-capitalization, accentuated by failure to use a money management approach to trading futures. There's an old saying in futures trading: "The trend is your friend."

43. Often, traders jump into a market based on a story in the morning paper; and in many such cases, the market already has "discounted" (priced in) the information. Remember, news flows around the world quickly, and there are many people watching the futures markets closely. Your chances of receiving significant information before others are very, very slim.

44. Lack of self-discipline on the part of the trader creates losses. Create a plan before you enter the market, and stick with it.

45. Traders don't clearly identify and then adhere to risk parameters; i.e., stops. If you establish a position, and the market moves against you, and your stop price is reached, get out. There's no shame. So what if you were wrong this time? Save your capital and look for the next chance to make a profitable trade.

46. Most traders overtrade without doing enough research. They take too many positions with too little information. They do a lot of day trading for which they are under-margined; thus, they are unable to accept small losses.

47. Many speculators use "conventional wisdom" which is either local, or "old news" to the market. They take small profits, not riding gains as they should, and tend to stay with losing positions. Most traders do not spend enough time and effort analyzing the market, and/or analyzing their own emotional make-up. Futures trading is hard work. It requires a significant amount of time and energy, not only studying the markets, but coming to terms with your own personal strengths and weaknesses.

48. Too many traders do not apply money management techniques. They have no discipline, no plan. This means that many overstay when the market goes against them, and won't limit their losses.

49. Many traders are undercapitalized. They trade positions too large, relative to their available capital. They aren't flexible enough to change their minds or opinions when the trend is clearly against their positions. They have neither a good battle plan nor the courage to stick with it.

50. Don't make trading decisions based on so-called "inside" information. Not only is it illegal, but it's also usually wrong. Keep in mind that it someone truly is in possession of inside information that potentially could result in a very profitable trade, they're not likely to share it with anyone.

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