Trading mistakes are common in commodity and forex trading. I became involved with my partners in order to learn from the mistakes of other commodity traders (and plenty of my own mistakes). In my opinion after being involved in commodity trading and trend following the basis of trading mistakes all boil down to three issues.
So many issues in trading are against our own human nature. A simple example is that commodity traders risk their hard earned capital on a trade. Isn’t it logical that if you put your hard earned money in an idea… you would expect it to work and make money…otherwise why would you risk hard earned money? You believe that the trade will make you money..that is why you put it on in the first place, Right?
Wrong… just because you put on the trade..it does not have to work.. Too many a trader do not sell and take a quick loss because they think they are right.. Guess what…The only thing that is right is to follow your plan with discipline and patience. Always act in your own best interest.
The real crux of successful commodity and forex trading boils down to how you think. Emotions such as the above mentioned can destroy ones commodity trading career. I have seen it… I do this everyday except Saturday and Sunday. I live it…
Here are some simple examples of mistakes that I have seen commodity traders make.
1. The commodity trader exits a trade early. He does not follow his plan…or mechanical trading system. He has a small open trade loss which has not gotten to his stop loss and because of fear ( maybe ego)… he exits prematurely and does not let the trade either get stopped out or work.
2. A commodity trader quits trading during a draw down ( probably right before a nice rebound). I have seen investors in commodity trading advisors quit and blame the commodity trading advisor & say that trend following does not work any more ( FEAR). Shortly their after if they had stayed in with the commodity trading advisor their account would have rebounded and they would have continued to compound their way to wealth. Draw downs are all part of this. More so the greatest draw down is always ahead of you.
3.I have seen commodity traders take profits and exit before their stops have been hit. They over ride their plan or mechanical trading system because they are afraid of giving back an open profit. One of the major tenants of trend following is LET YOUR PROFITS RUN!. These traders miss the big moves because of a combination of fear …or maybe greed.
4.I have seen traders not take a loss when they should of. Again they over ride their plan. Maybe out of ego…they do not want to accept they were wrong and the trade did not work. Worse.. I have seen commodity traders insist they are right and add to their losing position. Doing things like this are the seeds of destruction of a commodity trader.
Really I can keep on going…but in order to succeed…one needs to park their emotions and let the market tell them what to do. This is the whole basis of trend following.
So what is the point here… if you want to succeed in commodity trading, you have choices.. you can learn and trade yourself. This takes tremendous work and commitment. I know.. I have been there…If you are committed…develop a plan…you follow it with patience and discipline you stand the chance of succeeding over time. Another alternative is to allocate to a commodity trading advisor that has done the work and learned what has the chance of succeeding overtime.
You must understand how the commodity trading trades…and probably more important how they think about risk and money management. I trade with my colleagues which reinforces the needed discipline and patience…as well as allocate to other commodity trading advisors. Finding the right commodity trading advisor is surely not easy. However an initial four quick questions you can separate the potential successful commodity trading advisors and the want to bes..
1. What is their risk per trade
2. What is their risk per sector
3. What is their total open trade risk
4. What is their margin to equity..
Ask these questions…know what you are comfortable with. I wish you much success in your commodity trading career. Above all, get a mentor or find an online trading room where you can apprentice yourself to a real trader who is trading their own money live in front of you – the fewer members the trading room has, the better. This is a skill which is best learned by watching and gaining experience by putting in many hours in front of a screen showing price action. I learned by essentially serving a multi-year apprenticeship to market-makers who were originally trained in the stock-jobbing partnership Akroyd & Smithers, members of the London Stock Exchange.