When we speak about the difference between new traders and professional traders a lot of differences stand out. There is actually a pretty long list of these, but I think we should focus on a topic that should definitely help our readers. When I talk to new traders I find most don't have a valid system. A system is not focused around gut reactions or feelings about the market. A system is a tested and disciplined plan of attack that is emotionless and stubborn. All too often new traders jump into trading futures without a plan or objectives. Typically, most new traders use a system based on outside information or feelings. This is almost always disastrous; due to the fact successful traders are not typically lucky. A personal system is a must have if you want consistent success.
If you've been exposed to futures trading for a while you have received emails and read ads offering systems you can trade, or even automated systems you can obtain for a price. Surprisingly enough a personal trading system doesn't take a guru to figure out. Successful systems come from testing , back testing , and market indicators that you trust and understand. As a Broker and Advisor I have taught clients how to create their own system. Sometimes if it fits I'll teach them my own. So let's talk about the main keys to developing your own personal system.
1) Pick a market- Find a market you have an interest in and understand and track it. It is important to remember not all markets act alike. Get familiar with it and get to know how it reacts to news and fundamental information. See how much volume it has and get a feel.
2) Know the cost- Know whether or not the margin and contract size truly fits your comfort level. If you trade Crude Oil and your sweating the high volatility and large margin, it may not be for you.
3) Entry and Exit plan- Develop an entry and exit plan, and stay disciplined. A good system never deviates. Don't adjust it mid trade. Stay disciplined.
4) Test It - Most brokers offer simulated trading platforms to test your system. Keep testing it and back testing it until it makes sense on paper. If your trial runs out get another one. Don't put you money on it until you've worked out the kinks.
5) Make it emotionless- If you are creating a system and you still get stomach aches after you enter the trade your system is not emotionless. If it has been tested and makes sense, you ought to be able to walk away and do something else. The best systems ought to have solid execution areas. Once in what happens next shouldn't consume you. You have you stop losses and profit objectives, just let it work.
6) Expect not to win on every trade - Even the best system has a losing trade once in a while. Don't scrap a system if it wins only 55% of the time, refine it.
The ideas expressed and the data from which they are drawn are believed to be reliable but can not be guaranteed. Commodity trading may not be suitable for all recipients. Those acting on this information are responsible for their own actions.