Novice commodity futures and option traders make the same mistakes year after year. There's a tremendous amount of money that changes hands as a result. Make it HARD for the market to get your money, not easy! These principles apply to stock trading as well.


One problem many of us have is what I call "drunken sailor" trades.  These are commodity futures contract trades where we just can't wait to get in at any price. We throw out our discipline and jump in. Or we just plain guess. Or maybe we hear a well-respected commodity guru speaking about a particular futures contract market and then jump in at any price.

The hidden problem is that sometimes these drunken sailor trades work out. In a big commodity bull market you can stagger in most any time and the trend will bail you out. But in 90% of normal markets, you will lose over time. If a few drunken sailor trades work out, woe is me. We will be setting ourselves up for the big slam.

Remember how they set up that rich gangster politician in The Sting? They started small, got the guy's confidence and then he got greedy and got slammed. Watch out when you start thinking the commodity futures and options markets are easy, you have a hot method or system and your discipline starts getting lax with your trade choices. The market is about to "sting" you.

We've all seen the poker tournaments on TV. There's many parallels to futures trading here. Let's start with players going "on tilt." After they get a "bad beat", some start playing recklessly. They begin betting lousy hands, trying to bull the table and doing dumb things. They're trying to get their money back fast and trying to teach the other players a lesson.

Many futures contract traders do the same thing. We take a big hit and immediately get back in the market trying to teach it a lesson. Some will double their position and others may simply reverse position. Still, others make the big mistake of averaging down with losses that greatly exceed their risk parameters for marginal trades.

A good commodity trader never risks more than 5%-7.5 on any one trade. Many professional traders make that closer to 5% maximum loss a trade. Realize that if you're risking more than 10% of your stake on each commodity futures trade, and later go "on-tilt," it might be all over in one trading session.

Have you ever watched those Kung-Fu movies where two guys are fighting and one gets belted silly? The hero stays calm and collected. The loser gets mad and flies into a rage. He charges the hero and gets belted again. He gets even madder and goes out of his mind! The third time he charges, he gets knocked out. Ever feel that way? Ever have it happen to you?  I have. You take a loss. Then jump back in and get whacked again - this time even worse. We all feel like fools when this happens.

Learn to monitor your own actions and be aware when you start to go on-tilt. It will save you much money over the long haul if you can train yourself to liquidate all positions early and just walk away for a while. We are easy prey when on-tilt. Remember the theme for this lesson? "Make it hard for them to get your money."

Good Trading!


There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.