Dos and Don’ts for Derivative Traders

Dos and Don'ts for Derivative Traders

 

1 Do educate yourself first. "Don't jump in the water if you don't know how to swim." There are many quality books and trading manuals available that will teach you the dos and don'ts of trading. Use these resources to accumulate a working knowledge of the commodity markets before you start investing your hard earned money. Understand what you're getting into.

 

2 Don't buy into an expensive trading system. These so-called experts, who want to sell you their "trading secrets" for thousands of dollars, will usually leave you too dazed to even keep track of your losses. If someone has a system worth selling for that much, they would keep it a secret! There are many quality instructional trading manuals that sell for a few hundred dollars or less that will contribute much more to your education and long term success.

 

3 Do have a trading plan. Before ever entering a market, you should know what you can make and what you are risking. From a profit potential standpoint, you want to set preliminary targets and possibly a level to exit the trade. Know how you are going to react to a move in any direction.

 

4 Do be disciplined. Maintain your original strategy. Trading decisions should be based on sound analysis, not emotion.

 

5 Don't ignore fundamentals. Technical trading works. But even the best market formation and trading system can be over-run by a dramatic change in supply and demand. Remember, the law of economics will ultimately decide a commodity's price. The most successful traders are always aware of current technical and fundamental events.

 

6 Do use stop-losses. Whenever you enter into a trade, you should already know where you expect that market to go, and what the most is you'd be willing to risk on that trade.

 

7 Do be patient. Unless you're "day trading," don't get in and out of the market too often.  New traders especially, tend to enter into a trade based on intermediate- or long-term strategy, but then change their mind back and forth with every tick in the market.

 

8 Don't trade from a newspaper. The paper is typically a great place to keep up with local events, and maybe even sell your car.   It is not however, good information to use as your trading indicator.   Hence the adage, "Buy the rumor, sell the fact."

 

9 Do expect losses. Even the best traders are wrong sometimes.  Don't get down on yourself.  Be disciplined and stick to your long-term trading plan.

 

10 Do study your losing trades. Learn from your mistakes and misinterpretations.  Go back over the trading signals that prompted you to enter the trade.  This is how you learn to trade.

 

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