Avoid Common Beginner Pitfalls In Index Futures Trading

Many new futures traders find their way to the futures market through stock trading. One of the very first lessons a stock trader will learn, especially day traders and scalp traders, is to watch the S&P 500 futures. Most stock traders have a very healthy respect for the S&P 500 futures because they know that wherever they go, the cash markets will follow. Index futures traders that trade the Dow and NASDAQ  contracts will also follow the S&P 500 futures as well since they know the second they go south, it is time to exit all long positions.

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Always keeping one eye on the S&P 500 futures is the first lesson a novice trader needs to learn in how to trade eminis. Many stock traders eventually move to the futures markets but for various reasons. One very large reason is the that index futures require very little research on the part to the trader each night since they trade the same market everyday. Stock traders must scan and research different stock charts every night to find possible trade set-ups that offer trading opportunities once the market opens the next day.

Another reason stock traders may decide to change from stocks to index futures is volatility. On any given day the market is open, futures will almost always move to one direction or another offering opportunities for profit. Volatility is the key to movements that appear on chart screens that offer potential trade set-ups and executions. Reasons vary as to why futures contract traders choose the futures market but one reason is clear, they do offer enormous income potential for traders that are disciplined and focused.

Learning how to trade mini-sized index futures takes time and should not be approached until sound fundamentals are acquired on how the dynamics of the market works. New and inexperienced traders that have not taken the time to gain the fundamentals about the larger markets, including the futures market will most certainly fail and deplete their trading account quickly. One "death spike" can completely destroy a trading account. A death spike receives it's name because of it's formation on a chart. Usually death spikes occur when a unexpected financial news item hits the wires. In seconds, the futures market can turn and blow past stops, not stopping until the market has shaved off 30 or more points in seconds.

Being unprepared for these events can be catastrophic for the inexperienced futures traders. Trading more than one contract at a time with no experience is the main reason for these trading losses. Novice traders often exhibit impatience and want to rush the road to profits and end up losing all of their trading capital.

Money management or preservation of trading capital is one of, if not the most important rules and discipline a futures trader can learn. If there is on area that a trader should focus his energies on, it is developing a system that is mechanical in nature, either through software or mentally, and never deviate from this system during the trading day.

Developing a trading system that is tested against real time market data before ever trading the markets live, will increase the trader's chances of being successful. Experience futures market traders all use a system that has been tested and back tested and proven. One major function of the mechanical trading system is money management used to protect their trading capital.

Although their trading system may vary in design, all focus on money management, One trader may just use  pivot points, another may use support and resistance, while others may use moving averages and crossovers. Trading systems are as varied as traders but all have one thing in common...money management!

When experienced traders first learned how to trade mini futures, they quickly learned that using stops and exiting trades quickly once the trade goes south is the key to winning in the mini index futures markets. In fact, most traders will tell you, they experience more losing trades than winning trades, however, they have learned to cut the losing trades short and capitalize on winning trades.

Also, we need to address trading platforms. Charting software and brokerage accounts are a dime a dozen...there are hundreds that cater to trading the financial markets. A broker should be chosen with two very important points to consider: One is commissions. Brokerage firms that cater to all financial market traders will more often have higher commissions than one that specializes in one market such as the emini market. Commission rates vary, but finding commission rates of $2.50 per side is not uncommon and these brokers should be sought out since commissions can eat into profits.

The second is trade execution. The mini contract markets are fluid, volatile and can be lighting fast and fast executions are a necessity. Again, brokerage firms that specialize know what traders need in a trading platform and will offer the best executions for their clients.


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