We asked pros the #1 lesson they learned while trading. Here’s what they said…

Recently our readers devoured James Altucher’s post "Top things I learned about life while day trading millions." So we asked more professional traders to share their wisdom with us--and you.

We asked some of our contributors to write in with their personal insights on trading the markets. Their responses are varied and interesting, and perhaps there are a few of these tips that you are not following.

First, there is no one "right" way to trade. As they say, there is more than one way to skin a cat. And two, observing market activity will provide clues on where a market will go. You must learn how to listen to what the market is trying to tell you. These are their answers. (dun dun)  


Dan Gramza
 

Figure out the basics.

"As a trader, I have had the wonderful opportunity to trade stock, futures, options and cash markets around the world for over 30 years. I have also had the pleasure of exploring and sharing trading strategies with over 36 exchanges, four regulators and 450 institutions from over 35 countries. In addition, I have worked with institutional traders that trade a minimum of 20,000 contracts, $300 million in a cash market and a private trader trading one contract or 100 shares of stock.


Image source: photosteve101 


What I have learned from trading the markets for my own personal account, institutional or private traders is that there are basic elements common to every successful trader. The methodology of observing a market behavior, creating a trading strategy to match that market behavior, the determination of risk and profit management parameters and how a trader reacts to the result of a trading profit or loss that needs to be determined before a trade is made are essential for a successful trading career. If you do not have answers to these areas you should not trade.

The trader that has created the parameters for these elements is confident, comfortable and trades without hesitation. Take the time to seek the answers to these parameters for your own trading and I believe you are on the pathway to a successful trading career."

Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC.  He provides daily market updates from around the globe on subjects ranging from the Nasdaq and currencies to crude oil and grains. 

  


Carl Larry @oiloutlooks
 
 

Don’t believe the hype
 
"In oil trading there are three rules of market fundamentals: Don’t believe the hype, there’s always more demand than you know and no matter how much supply there is, it’s never enough."
 
Image source: Terence Wright

Carl Larry is the president of Oil Outlooks and Opinions LLC. He provides daily oil market guesstimates with a dose of pop culture.

 


Rod David
 

"Sideways" is a direction.

"Sideways is a direction. And it can be worse than your position moving in the opposite direction of your long or short. At least those will trigger a stop ends your being distracted by a sideways market... Speaking of long and short, 'flat' is a position, too."  
 


Image sourceBob Vonderau


Rod David primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session.


Dominick Chirichella @dacenergy


Listen to the market.

"The two most important things I have learned from trading the market are discipline and the fact that the market is always telling us what to listen for. Discipline is so important because it keeps us with money to keep trading when our positions are in the wrong direction. Without discipline failure is almost guaranteed.

 
Image sourceDavid Ohmer
 
Listening to the market on a daily basis is the key to having more winners than losers. Always remember that when you have a winner you followed what the market told you. When you hate a loser unfortunately you did not understand or not listened to the market."

Dominick Chirichella has 40 years experience in all facets of energy and commodity trading, risk management, and education. He is the author of Energy Market Analysis and writes weekly energy analysis.
John Caiazzo @jlc7111
 

The markets will tell you if you are right or wrong. 

"Since first registering with the CEA in 1961, I have learned that the markets will tell you if you are right or wrong.
 
 
Image sourceSimon Cunningham
 
 
Just about everything we use, touch, wear or eat, is a commodity. Gold, silver, platinum, copper, wheat, soybeans, corn, meat are all commodities. Even money is a commodity.

Most investors buy stocks on the basis of the activity in an underlying commodity. For instance, when gold prices go up, people buy stock in gold mining companies. When crude oil prices go up they buy stock in oil companies. Suppose the company is mis-managed. Suppose the workers go on strike, or there are shipping or delivery delays? The price of the commodity goes up but does not help the company’s earnings (and price).

When the price of the base commodity retreats, the stock sells off even more dramatically. Why not just buy the commodity? Most people are afraid of commodities. They do not understand how commodities "work" or how leverage can work in their favor or against them. Commodities are traded in units. They are futures contracts on a given amount of a particular commodity.

For instance, a contract on gold consists of 100 troy ounces of gold for delivery some time in the future. That means a move of $1.00 per ounce translates to $100 per contract. What confuses most people is how leverage works. Consider the purchase of a house for $100,000 and a down payment of $10,000. If the value of the house increases to $110,000, what is the percentage gain? Most people would respond 10%. They are incorrect. The actual gain is 100%. Their actual investment is $10,000 and the gain is $10,000. That, simply stated, is leverage. Conversely, a decline in that home value of $10,000 means a decline or loss of 100%."

 

(cont.)

That is the crux of the concern attached to trading commodities. However, before that loss occurs a margin call would be issued and additional funds would be required to maintain the position. It is similar to buying stocks on margin, the exception being that margin rates are currently 50% while the margin on most commodities is around 5%. Putting enough money into a position allows you the flexibility to see if you are right, or wrong in your expectation of price direction.

In buying stock on margin, there is a debit balance which creates interest costs. There is no debit balance in commodities. There is a good faith deposit that is called margin, which varies from commodity to commodity. If the price of the commodity goes up the equity improves and you can draw down the excess over the basic margin requirement without liquidating the commodity position. When the price goes down you are called for more money to maintain the margin on that commodity position. There is no interest charged because there is no debit balance.

Any advisor who claims to have a system that is risk free forgets the part about it being "risk free" for them."

John Caiazzo has over 40 years of experience at brokerage firms across the United States. He provides the end of week market wrap-up.


Alan Rohrbach @MacroMeister

Not to decide is to decide: Patience and context should precede entering trades.

It’s just a lot more fun to trade than wait. That blind flash of the obvious is clear to new traders from almost the very first trades they make.

Yet one of the key lessons learned by all successful market participants (whether traders, analysts or portfolio managers) is that in addition to excitement, entering positions also brings stress and potential loss. Successful long-term market involvement is almost never based on looking for a particular economic factor prediction process or technical trend methodology.  
 

Image source: Terence Wright

 

Before traders attempt to determine which fundamental news and technical indications to pursue, they should ask themselves very key and personal questions. How much risk are they willing to accept in any given situation? Are they comfortable holding positions overnight? And which trend indications would best support identifying opportunities consistent with their style? That would lead them to a more effective market involvement than chasing after "the indicator of the moment."

Having the right indicators they are confident suits their style, and not worrying about any potential profits missed from other approaches, provides the patience to effectively manage their market involvement. Successful, mature traders or portfolio managers appreciate that their market analysis should act as ‘armor’ against the natural tendency to adjust positions too actively.

Not to decide is to decide. The right sort of context provides the patience necessary for success.

 

Alan Rohrbach is lead analyst and president of Rohr International IncHis forte is macro-technical analysis of how fundamental influences blend with technical aspects to drive trend psychology.


Matt Weller @MWellerFX
 

To improve is to change; to be perfect is to change often.
 
Famed Welsh philosopher and mathematician Bertrand Russell once stated, "In all affairs it's a healthy thing now and then to hang a question mark on the things you have long taken for granted."
 
More than any other profession, traders need to keep this quote in mind.  
 
Image source:epSos .de

 

To take a salient example from earlier this year, it was a given that the Fed’s decision to wind down its QE program would lead to higher bond yields. The logic of this view was so alluring that traders never questioned whether the rise in yields was already priced in or whether other factors could overwhelm the taper and drive yields lower. Lo and behold, 10-year treasury yields fell consistently in the first half of the year, from above 3.00% in January to a low of 2.46% in May. In this case, a dose of skepticism could have paid big dividends.

Of course, Russell’s quote has broader implications than just trading. Through critical thinking, my views on controversial political, social, and ethical issues continue to evolve every day, and quite frankly, I wouldn’t have it any other way. In the word’s of another 20th century titan, Winston Churchill, 'To improve is to change; to be perfect is to change often.' These words can serve as a motto both for traders and a life well-lived."  

Matt Weller is the Senior Technical Analyst for FOREX.com. He contributes regular updates on various currencies throughout the day.

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If you would like to be inlcuded in the next installment slideshow of our "Tips for Traders" series, please send us a 250-word response to the question "The best indicators to use today are ...," along with a short bio and your twitter handle to yduran@futuresmag.com (@yesifutures) and you will be considered.  

About the Author

Lauren is the editorial assistant for Futures Magazine. She graduated from DePaul University in 2013 with a degree in English.