Home | Finance | Investments
Do you know what the amazing thing about trading futures is? You can't lose! I know that sounds unbelievable... and I'm not suggesting that you'll never have losing trades, what I am saying is that ultimately unprofitable futures trading can be sidestepped if traders would simply follow two funadmental trading rules: 1 - Don't trade under-capitalized 2 - Use (and never abandon) stoploss orders While you don't need tons of money to be successful in trading, you should have enough to ride out the invariable loss. To give you an idea of how much you should have, always consider having (at least) 10x your average loss. If your stop-loss orders will usually get you out of the market with no more than a $500 loss on the trade, then you should have at least $5,000 total trading capital. (Hey, if you can't pick one winner out of ten trades, you need more help than I can provide you with.) If your average risk/potential loss is closer to $1,000, then you should have about $10,000 of trading capital. Another way you can come up with your recommended trading capital amount is to take your expected (or actual) loss on three consecutive trades and multiply it by 3. So if you were risking $1,000 per trade, then 3 losing trades would put you down by $3,000. Take that and multiply by 3 to get a suggested starting capital of $9,000 to $10,000. Let me sum up the lesson of trading capital with this critically important truth about futures trading - Losses are part of the game. Futures trading is speculation. No one (at least no one I've ever met anyway,) speculates with 100% accuracy. But the wonderful thing about futures trading is that you don't need to trade perfectly - you can be quite successful even if you're losing more often than you're winning... as long as you always 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. Got it? Never. Believe me, when a market is close to stopping me out, I can always easily dream up a dozen "good" reasons to either cancel or move my stop. The only problem is that they aren't good reasons - they just look good at the time. They're really 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 no shame in being wrong in your judgment about a market. The only shameful part is being unwilling to change when you were wrong, and stubbornly clinging to a bad trade.
Provided by ArticleGOLD: Articles Directory - Article Directory
About the Article Author
Halston Adams worked as futures broker until he stumbled onto his recipe for generating impressive returns by studying successful traders. Find out more about his trading approach at: Futures Trading Secrets today.
Please Rate this Article
5 out of 54 out of 53 out of 52 out of 51 out of 5
# of Ratings = 1 | Rating = 5/5
