I love futures trading... because executed right, you can't lose! All right, perhaps that's a slight stretch. It is possible to lose your shirt. However, I honestly believe from my own experience that a trader won't lose money in the markets as long as he or she follow 2 simple tenets: 1 - Have sufficient trading capital 2 - Use (and never cancel) stoploss orders First off, you've got to have enough trading capital to even consider trading. While you don't have to have a boatload of money to trade successfully, you should have enough to stay in the game. I always suggest to aspiring traders to have at least enough to cover 10 times the average amount you expect to be risking on any given trade. So if you plan on risking about $500 on any given trade, you should have a minimum of $5,000 in total trading capital. This allows you some margin of error in the case of a losing streak. If you expect to risk more like one thousand dollars per trade, you should plan on having at least $10,000 available in trading capital. Here's another method of calculation - your total potential loss on three straight losing trades should be equal to no more than one-third of your total trading capital. For example: If you're going to risk an average of $1,000 per trade, then three straight losing trades would amount to a loss of approximately $3,000... therefore, your total starting stake should be at least $9,000 - $10,000. We've focused a lot on losses, because they are critical to success. Although futures trading is risky, and nobody can be 100% certain of the outcome, the beautiful thing about it is that you can be wrong more than right and still be quite successful, as long as you can manage your risk. And that brings us to point #2 - Always use reasonable stop-loss orders. There's no way to assemble an accurate statistical figure on this, but from looking at my own trading, as well as that of clients and fellow traders, over the course of many years, I would guess that about 90% of busted trading accounts are the result of someone "falling in love with" a trade. Rather than take a reasonable loss, people pull their stop orders, and stay in a trade - vainly hoping for it to turn back in their favor - until it bankrupts their trading account. I've seen it happen quite often - and certainly more times than I care to think about. Let me make this as simple as possible for all of us - Never cancel a stop-loss order. Never. Believe me, when a market is close to stopping me out, I can always easily come up with at least a dozen "good" reasons to cancel or move my stop. The only problem is they aren't really good reasons - they just look good at the time. They're merely rationalizations devised to give me hope that I was right, when the market is clearly pointing out that I was wrong. Take your losses; take them early; take them when they're cheap and relatively painless. There's nothing wrong with being wrong in your judgment about a market. The only shameful part is being unwilling to admit that you were wrong, and stubbornly clinging to a bad trade. These two elements, although rather dull, are the basis for successful trading. I know haven`t even touched on entries and exits, but neglecting the right starting point, getting to the desired destination is literally impossible.
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I love futures trading... because executed right, you can't lose!
Halston Adams worked as futures broker until he learned the keys to producing enviable returns by studying successful traders. Find out more about his trading approach at: 100% Gains today.
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