The following 10 "pitfalls" are ones that over 90% of traders have encountered. We categorize them as the 10 major mistakes common among futures investors.
Full Margin Trading
Full margin trading may rapidly increase wealth, but it can also lead to a quick liquidation. There are no absolutes, and even funds can't fully control sudden market events or policy/news impacts. Wealth accumulation is proportional to time, a consensus among futures experts globally.
Solution: Never trade on full margin. Open positions with no more than 30% of your total capital, at most 50%, to avoid margin calls or other unexpected situations.
Counter-Trend Positioning
Many new investors like to take reverse positions when the market is locked at its limit, and while luck might bring occasional profits, it is a dangerous strategy. If the market trends in one direction continuously, you'll be forced to close positions at a loss.
Solution:Never open reverse positions when the market is locked.
Position Holding Syndrome
This is a common ailment where investors feel restless when they have no open positions and feel compelled to trade. On the other hand, when they hold positions and the market moves against them, they panic. They think opportunities are endless and keep trading, often resulting in losses.
Solution: Be patient. If the market offers no opportunities, rest. When opportunities arise, act decisively. Stick to your stop-loss and take-profit levels.
Trying to Pick Tops and Bottoms
Some investors always try to predict market tops and bottoms, leading to being trapped in the middle of price movements, unable to escape, which results in large losses.
Solution: Rely on charts and follow the trend. Never try to pick tops or bottoms. Be a trend follower.
Refusal to Admit Mistakes
Many investors refuse to acknowledge their mistakes, and they hesitate to exit losing positions. This behavior prolongs losses and can lead to significant financial damage.
Solution: Admit when you're wrong and exit losing positions immediately, without any hope for a turnaround.
Counter-Trend Rebound Hunting
Can you hunt rebounds? Yes, if done correctly. Otherwise, it's like playing with a sharp knife. If a knife is falling from the sky, you wait until it lands before picking it up. The same logic applies to the futures market.
Solution: Rebound hunting requires skill. If you're inexperienced, don't take risks. Follow the trend and manage your funds carefully when participating in a rebound.
Frequent "All-Day" Trading
Many traders try to be all-rounders, constantly switching between long and short positions. While this might seem disciplined, it violates the essential principle of trading with the trend.
Solution: In a bull market, only go long—open, close, and reopen long positions. In a bear market, stick to short positions.
Hesitation When Placing Orders
When going long, you fear getting trapped by fake breakouts; when going short, you fear missing out on real moves. This indecision causes you to miss profitable opportunities.
Solution: Understand the concept of inertia when a trend starts. Once the trend has moved, follow it until it reverses. Always adopt a "take the trade as it comes" strategy, and when false breakouts appear, the odds of a reversal are high.
Drawbacks of Medium and Short-Term Trading
Some mistakenly think that short-term and medium-term trading differ only by the length of holding positions. In reality, medium-term trading means holding a position in the direction of a large-scale trend until it’s broken, not based on time alone.
Solution: Understand the drawbacks and combine short- and medium-term strategies according to the rules of the market.
Being Obsessed with the Big Players' Moves
Many traders experience this: When you go long, the market drops; when you short, the market rises. You cut a position, and the market moves in the opposite direction. Luck plays a significant role in futures trading, and the big players don’t care about your small trades.
Solution: Close your computer, take a break, and come back with a calm mindset to start afresh.
By recognizing and addressing these common pitfalls, traders can improve their decision-making and better navigate the complexities of futures markets.
