Tradovate Futures Trading Blog

9 Principles for Savvy Traders

Posted by Steve Burns on June 9, 2015 at 4:25 AM
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There are two types of traders: profitable traders and unprofitable traders.

Here are some key principles that may set you on the path for a lasting trading career.

Pick a trading methodology.


This is a particular way of approaching the markets, based on belief, practice, and study. Some popular methods are: trend following, momentum trading, breakout trading, swing trading, scalping, and day trading. Leave randomness behind and embrace a specific method.


2. Choose a specific timeframe and filter out the noise of extraneous price action.


If traders use the daily chart with end of day prices, then they don’t have to watch every price tick, all day long. Traders can make (or lose) money trading weekly, daily, or intraday, but they must focus on their own timeframe.


3. Use a trading system.


This gives traders specific entry and exit signals based on their own edge, from back testing price data, chart studies, and chart patterns. This systematic approach can remove the random nature of individual trades, and put them inside a framework.


4. Have a trading plan.


This gives traders a blueprint to execute a trading system in real time. It helps them mitigate risk by pre-planning their entries and exits, position sizing, maximum risk exposure, stop losses, trailing stops, and profit targets.


5. Reduce the risk of ruin.


Through proper position sizing and the use of stops, traders may limit the size of their losses. Don’t hesitate to exit trades when proven wrong.


6. The risk/reward ratio is the risk of a stop loss being hit, versus the potential of a trade making it to the profit target.


This ratio determines if the potential risk for any given trade is worth the chance of reward. Always consider what you stand to lose and what you stand to gain.


7. Have the discipline necessary to follow a plan.


Take the time to first develop a good trading process that works for you, and then have the discipline and perseverance to follow it.


8. Let go of your ego.


Egos have led many traders down the road to loss and ruin. Traders lose money due to their desire to be right instead of reacting to actual market conditions and movements. Base trading decisions on actual price, and not your ego.


9. Fear and greed cause the majority of trading errors.


A good trader should follow a plan, and trade based on facts.

Becoming a successful trader takes hard work and dedication. In addition to having the discipline and fortitude to follow a trading plan, good traders must look inward and grapple with their own ego and emotions.


Related Reading: 5 Ways We'll Make Futures Trading More Retail Friendly


Past performance is not necessarily indicative of future results. Due to the volatile and leveraged nature of commodity markets, the risk of loss in trading commodity futures contracts is substantial and is not suitable for all investors.


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