It seems there is a chorus of marketers hawking a variety of Forex and e-mini day trading programs on the Internet. There are promises of fast cash, 1000% returns, and guaranteed methods of trading. Nothing could be farther from the truth. Learning to trade is a skill, much like the skill set required for any job. This skill set is not acquired instantly from reading an e-book or buying a trading course. This is not to say that buying a trading course is a bad idea, in fact, it’s a great idea. But to trade effectively you need to give yourself some time to learn trading methodology, market psychology and acclimate yourself to the trading environment.

I encourage everyone to learn e-mini day trading, but I caution against running headlong into the market place with expectations that are not realistic. The first few months of trading can be disastrous without proper preparation and experience.

1. Most Novice Traders Tend to over Trade.

When considering an e-mini day trading opportunity it is important to weigh a number of factors and assess the probability of the trade being successful. Relying on rote oscillator signals or similar rate of change indicators without fully assessing the price action in the e-mini contract being traded is the recipe for failure. It is important to firmly understand the current trend in the market and the size of your e-mini futures account before entering any trade.

I regularly see new traders taking 10 to 15 trades a day. Rarely are there are this many trading opportunities during a trading session. Experience has taught me that there are 5 to 8 good trading setups each day, sometimes less.  Why do novice traders tend to over trade?

A typical reason for over trading is “chasing the market.” New traders tend to pile into trades late, usually just-in-time for the directional movement of the market to change. There are a variety of reasons new traders tend to chase the market, for the most common reason for this phenomenon is taking every single trade indicated by an oscillator or indicator. It is important to use a multi-threaded system to filter your trades in a manner that eliminates some of lower probability trades. Trade filtering is one of the most important components of any trading system. Some trading systems use trending markets and agreement between several indicators to indicate a trade. There are many filtering systems on the market and all good trading programs filter trades in some manner.

2. Most Novice Traders Tend to Trade to Many Contracts

Money management in your e-mini futures trading account is the skill that will enable traders to remain in the market for an extended period of time. On the other hand, trading the maximum number of contracts your account is authorized to trade (by the brokerage margin department) is a mistake.

A good rule of thumb for sizing the number of contracts in a potential trade is to never trade more than 5% of your e-mini trading account balance. For many smaller accounts, this will mean trading only one contract. Emotionally, trading a mere one contract is a difficult task, especially when the new trader has purchased a program that has conditioned his or her thinking to get-rich-quick. Because the margin department has authorized you to trade up to 5 contracts doesn’t mean it’s a good idea to do so.

Why?

Should you go on a run of losing trades, save 4 in a row, you can easily lose 60 to 70% of your e-mini trading account balance. Needless to say, this is a less than desirable outcome. In my opinion, most traders trade to many contracts because they have been conditioned to believe their trading system is infallible and all they need to do is follow the system and riches will come pouring their way. As I said earlier, 5 to 7% of your account balance is the maximum you should risk on any given trade.

3. Most Traders Are Not Familiar with the Psychological Factors in Trading.

I like for my first trade to be successful because it puts me in the right frame of mind. Of course, there are days when you might be stopped out on your first trade and find yourself with a significant negative profit/loss position. At this point, it is not unusual for novice traders to over trade or trade too many contracts in order to catch up.

Regardless of the day’s prior trades, is essential to maintain your trading methodology and money management system. There is always a temptation when you are having a losing day to up the number of contracts in an effort to regain your footing in positive territory. This is always a bad idea. Traders also tend to increase their risk tolerance by initiating lower probability trades when they are having a losing day.

It is essential to trade your account, not let your account trade you. It is entirely possible to salvage a day after an initial losing trade. To be sure, you are more likely to produce positive results when you stay true to your system. Negative account balances for a trading session are notorious for compounding problems. You can easily turn a modest loss and to disaster by trading outside the parameters of your e-mini day trading system.

In summary, we have discussed the importance of staying true to your system and not letting outside factors put you in the market before you are ready; over trading, poor money management, and unfamiliar psychological feelings all contribute to trader failure. In short, be fully prepared to trade before you begin trading in earnest; there is no need to rush into e-mini day trading before you are ready.

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In my trading, I keep my countertrend trades to less than 10% of my total trades. In other words, I am trading with the trend 90% of the time. There are several reasons for this, the most obvious is that trading with the trend is consistently profitable. Conversely, trying to initiate countertrend trades generally results in disastrous and unprofitable results. Yet I consistently see traders attempting to buck the trend when they see what appears to be an excellent countertrend trade set up. Generally speaking, these trades start toward the countertrend trade side, and then resume back in the direction of the trend. It takes real discipline to ignore nice countertrend trade setups because they are enticing, they are also poison.

Scientific analysis from a number of sources reveal that future prices have a strong random component accompanied by a small trending component. The ramifications for this statement suggests that any trade not in the direction of the trend stands a less than average chance of success. The lesson is a simple one; when prices are trending upwards you should buy; and when prices are trending downwards you should go short. This explanation seems simplistic but the tremendous number of traders who violate the simple precept is staggering. It would seem intrinsically obvious to the casual observer that trading in the direction of the trend simply make sense.

I don’t have a scientific reason why people violate trading with the trend, only my own subjective observations. Most traders use some form of methodology involving oscillators and rate of change indicators and very often during a trend these indicators will indicate a buy/sell signal against the trend. Since most traders trust their indicators, they tend to take the indicated trade even though it is against the trend. Bad mistake. Oscillators and rate of change indicators do not differentiate trending and non-trending markets. They simply take into account specific price action and display the results. So often you’ll see a oscillator indicated trade against the trend, and you have to learn to ignore this buy/sell indicator. In reality, it is no simple task and takes a high degree of self-discipline.

Other traders pride themselves on identifying market peaks and market troughs. If you think about it, this trading is predictive in nature. As I have stated in many articles, the randomness component in futures trading makes any futures market predictions a low probability proposition. I preach trading in a reactive faction, which means identifying trends and taking trades in the direction of the trend. It only makes sense. In my opinion, the only truly successful futures traders always trade in the direction of the trend. But back to our predictive traders, there is certainly no shortage of vendors hawking the latest predictive mechanism which will enable traders to spot market peaks and troughs. Usually these products fall to the wayside in short order. Here is the problem; certain techniques work under finite market conditions, but the market is a creature of many moods and predictive techniques are unable to adjust to the many market conditions that occur. Quite simply, there is no predicting what the market will do and anyone who claims they have figured out, in a predictive sense, where the market is headed is simply wrong. It’s never been done, and scientific evidence suggests it cannot be done.

The results speak for themselves, and trend following is one of the few valid methods for real profits in the futures market. Once a trend is identified, a trader can use his oscillators or other indicators to find a valid entry point and generally do very well. One nice and profitable result of trend following is the ability to let your profits run. If the market is headed in one direction, stay with the trade. There will be periodic retracements in any trend, and they are to be expected. But don’t be fooled by these retracements, as a trending market will resume its original trend after a short retracement period. In my opinion, traders who are enticed into trading the retracements are convinced the trend has changed, only to find out exactly the opposite. Trading retracements is dicey business, and I avoid it.

In summary, the vast majority of the trades you make should be with the trend. It would be wise to repeat this 20 times every day. Countertrend trading is dangerous and unprofitable trading technique and should be avoided. Find a trend, follow the trend, and let your profits run. It’s a pretty simple formula, but it has been working for decades and I see no reason to deviate from this profitable approach to trading.

- About the Author: I am a long time retail and institutional trader who now only trades part time, usually in the morning. I enjoy writing informational articles about my style of trading so others may benefit. Would it be convenient to recieve valuable trading tips every night in your email? You can sign up for our free video series by Clicking here These videos contain advanced trading strategies and will enhance your trading knowledge immeasurably. Best of all, they are free! So get your free videos and start trading like the pros. Article Source