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3 Ways to Help Mitigate Risk While Trading Futures

, , | March 8, 2024 | By

No doubt about it, coping with the loss of hard-earned money is the most difficult part of active futures trading. An ill-timed loss or series of poor trades can have extreme psychological impacts on almost anyone. As far as trading skills go, being able to cope with losing money in a healthy manner is among the most valuable.

Losing money is no fun and extended periods of account drawdowns are even less so. However, by keeping losses affordable, sticking to your game plan, and being selective, righting a sinking ship is possible.

Stick to Your Plan

One of the strongest tendencies among traders in the midst of a cold streak is to expand the scope of operations. Pursuing fresh opportunities via new trade ideas, strategies, and markets often seems to be a good idea. However, more times than not, these efforts are counterproductive and expensive.

Streamline your approach to the market to help reduce your risk. Adhering to the trading skills you are most comfortable with can help reduce losses. This is easily accomplished by placing complete focus upon your best markets and strategies.

It’s true that a trader should never stop learning and searching for opportunity. However, the time to expand your horizons is not when you’re hemorrhaging cash. Sticking to your trading plan is the best way to weather any storm.

Keep Losses Affordable

For active traders, losing money is unavoidable. It’s merely a cost of doing business, nothing more. Being able to minimize account drawdowns and put them into the proper context are essential trading skills for any futures market participant.

The good news is that these tasks may be accomplished by developing the trading skills to incorporate detailed risk management techniques into your trading plan helping to reduce your overall risk.

Be a Selective Trader

After a loss, basic human nature prompts us to immediately try and win back long-gone revenue. This phenomenon is known as chasing and is an incredibly destructive influence on profitability. Chasing may be accomplished in many ways, commonly by piling on leverage or taking way too many trades. In either instance, gambler’s ruin is right around the corner.

Staying disciplined in the face of adversity is one of the trading skills winning futures players find indispensable. Simplifying your approach to the markets is a great way to restore absent discipline and consistency. You can accomplish this by implementing several basic techniques:

  • Trade the best: Executing only the best trade setups according to your strategy greatly reduces the chances of capital loss. By eliminating any marginal trades, losses will become improbable at best.
  • Simulate: Trading on a simulator is a good way to regain the confidence lost during periods of account drawdown. Placing trades in a risk-free environment is a positive way to stay engaged in the markets without the possibility of losing money.
  • Take a break: When all else fails, stepping away from active trading for a period of time is a guaranteed way of stopping capital loss. Occasional breaks from the market are good. They can help restore clarity, enthusiasm, and desire to struggling traders.

Unless you work for a proprietary trading firm, you do not have to trade every single day. Overtrading is a leading cause of failure in the futures market, aided by the ease of trade execution and markets being open on a 24/5 basis. Perhaps the most important attribute successful traders exhibit is self control ― being selective is a great way to promote discipline and consistency throughout every session.

Need Help Developing Your Trading Skills?

The best way to learn invaluable trading skills is to begin under the guidance of a market veteran. StoneX has everything you need to get up to speed in no time. From free broker consultations to trading education, StoneX has you covered.

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