I’m a firm believer that day trading or scalping futures contracts for profit can be one of the most challenging endeavors that I will ever witness in my life. Oddly enough, that may be what keeps me trying, and maybe it is what keeps traders coming back; the enormous challenge that is involved. I mean, how hard can it be to capture a 50 cent move in crude oil with a one-lot for a $500 profit throughout the course of a trading session? Or how hard can it be to capture a simple $5 move in the price of gold, which also would be a $500 profit, throughout the course of a full day or night of trading? It sounds sooo eeeeeeasy! How could you go wrong?
After 15 years as a retail broker, I am here to tell you that it is not. One of the major issues traders encounter in my experience is one of the seven deadly sins — GREED. According to the Bing dictionary greed is defined as a strong desire for more: An overwhelming desire to have more of something, such as money, than is actually needed.
Certainly this can't be argued, but the way it manifests itself throughout the course of a trading day could be a factor in the breaking of trading rules, trading plans or trading goals. For example, let's just say you have a system that works for you because your trading goal is to scalp a $300-$400 profit on a one-lot. What should be utilized here is a simple bracket order that will close your position when you reach a $400 profit. You agree and use the simple bracket order on a regular basis.
Instead, one day you choose to go with the 'ol "mental" profit target and decide to get yourself out if the profit is attained. This is greed. Why? Because one of the reasons that you may have chose this strategy could be because so many times you set up the simple bracket order, but the market continued to run another few ticks farther and it "cost you money." Your system is working, you are attaining your goals, yet it's costing you money. I don't get it, yet I can totally relate to this example.
This 'ol mental profit target is, to me wrong on so many levels based on the example I've described. For one, you are now glued to the screen because you don't have the profit target automatically set up with the simple bracket order feature. Being glued to the screen turns something that should be easy and enjoyable into an aggravating, nerve racking and all-consuming exercise. All because of greed.
Another way the 'ol mental profit target goes against your trading system, goals or plans is because it begs the question, “What is your target now?” It's not $300-$400 per one-lot any longer. In fact, if the market gets there, you're holding because that darn simple bracket order has "cost you money" time and time again. Now you’re trading like it's the Wild, Wild West.
What usually happens on this day is the market doesn't go farther than your normal target, but right to it. Then it falls and instead of taking what the market gives like your system suggests and the simple bracket order allows, you have turned a winner into a loser. All thanks to our good friend greed.
I could on and on about how greed ruins trading and I could give multiple specific examples of this deadly sin and trading, but it would take too long. Greed affects traders in many different ways. It always seems to boil down to the exact same thing when this simple plan comes crashing down. The party-pooper in this commentary is the greed of the trader. Whether you are making your first trade ever or you are the guy who told me "I don't need any hand holding, I've been doing this a long time...all I care about is a low rate and you won't ever hear from me," greed kills!
About the Author
Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.
Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.
Futures and options trading involves substantial risk and is not for everyone.