From the December/January 2013 issue of Futures Magazine • Subscribe!

5 New Year’s resolutions for traders

1 I will understand what I am trading

By far the most common suggestion given by analysts was to educate yourself and know exactly what it is you are trading before you even consider putting on a position. Even within the same asset class, products can have dramatically different specifications. For example, wheat futures may have different contract specifications depending upon which exchange’s wheat product you are trading. As new products continue to be created, taking the time to understand the product becomes all the more important. 

Not only do you need to understand the contract specifications of what you are trading, but also why you are taking the trade in the first place. J.J. Kinahan, chief derivatives strategist at TD Ameritrade, says retail customers particularly often struggle with this aspect. “It’s good advice, but unfortunately not always taken. Retail customers will go into the stock world and trade a stock because someone at a cocktail party talked about it,” he says.

Instead, traders should take the time to understand the product they want to trade and the strategy they wish to employ. Travis Rodock, senior futures analyst at efutures, says this is all part of doing your homework. “Education and preparation are two of the most important aspects in trading. [Because] markets always are evolving, it is important for traders to educate themselves constantly about the tools and strategies that are out there to help them take full advantage of trading opportunities,” he says.

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