Ask a Broker

September 2005

Q: What do you think is the single most important thing to learn regarding futures trading?

A: From floor traders to fund managers, from position traders to day traders, the common survival thread is something that comes from within. It is a trait that can and has to be learned by each individual. It can only be learned by experience, while maintaining the idea that a lesson is always being taught. There is no magic formula or mysterious system that will allow you to do well unless you know how you will react under most any circumstance. As a trader, the most important thing to learn is you.

The pressure and excitement of a winning or losing trade often will cause action or inaction that would otherwise be ill-advised. All of us who have traded before have on occasion said to ourselves, “I can’t believe I did that. I know better.” The circumstances and thought processes leading up to those errors in judgment are what we need to be aware of. Not getting out when our trade works perfectly, or even worse, not getting out at all when it doesn’t, are common mistakes. As a floor trader I have seen many others fall because they think they are infallible and that they are “seasoned” enough to never have those all-too-human feelings of greed or fear. It is exactly the same with traders off the floor. As I work with my clients who come from all walks of life all over the world, I have noticed that the traders who last are the ones who know the human side of trading. I see these traders who do not know themselves and fail to keep themselves in check are the ones that have the most trouble.

Call it psychology or call it whatever you like, but knowing your own levels of greed, fear and ego are more important than knowing where the market is headed. Making sense of yourself is more important than making sense of the market. There are so many variables when trading the futures markets that a good trader will need to be prepared for the unexpected, and know how to react when it happens. All traders have accounts because they want to be involved in the markets, so entering a position is the easy part. Exiting a position is when a person is tested.

Kristina Zurla Landgraf is editor of Lind eWire. She can be reached by email at editor@lind-waldock.com. To submit a question for Ask a Broker, contact the editor at that address. This article has been edited since its original publication.

Futures trading involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

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