Following are some basic rules for Future Traders :
1.Apply money management techniques to your trading.
2.Do not overtrade.
3.Take a position only when you know where your profit goal is and
where you are going to get out if the market goes against you.
4.Trade with the trends, rather than trying to pick tops and bottoms.
5.Don’t trade many markets with little capital.
6.Don’t just trade the volatile contracts.
7.Calculate the risk/reward ratio before putting a trade on, then guard against the risk of holding it too long.
8.Establish your trading plans before the market opening to eliminate emotional reactions.
9.Decide on entry points, exit points, and objectives. Subject your
decisions to only minor changes during the session. Profits are for
those who act, not react. Don’t change during the session unless you
have a very good reason.
10.Follow your plan. Once a position is established and stops are
selected, do not get out unless the stop is reached, or the fundamental
reason for taking the position changes.
11.Use technical signals (charts) to maintain discipline – the vast
majority of traders are not emotionally equipped to stay disciplined
without some technical tools. Use discipline to eliminate impulse
trading.
12.Have a disciplined, detailed trading plan for each trade; i.e.,
entry, objective, exit, with no changes unless hard data changes.
Disciplined money management means intelligent trading allocation and
risk management. The overall objective is end-of-year bottom line, not
each individual trade.
13.When you have successful a trade, fight the natural tendency to give some of it back.
14.Use a disciplined trade selection system…an organized, systematic process to eliminate impulse or emotional trading.
15.Trade with a plan – not with hope, greed, or fear. Plan where you
will get in the market, plan how much you will risk on the trade, and
plan where you will take your profits.
16.Cut losses short. Most importantly, cut your losses short, let
your profits run. It sounds simple, but it isn’t. Let’s look at some of
the reasons many traders have a hard time “cuttings losses short.”
First, it’s hard for any of us to admit we’ve made a mistake. Let’s say a
position starts going against you, and all your “good” reasons for
putting the position on are still there. You say to yourself, “it’s only
a temporary set-back. After all (you reason), the more the position
goes against me, the better chance it has to come back – the odds will
catch up.” Also, the reasons for entering the trade are still there. By
now you’ve lost quite a bit; you sell yourself on giving it “one more
day.” It’s easy to convince yourself because, by this time, you probably
aren’t thinking very clearly about the position. Besides, you’ve lost
so much already, what’s a little more? Panic sets in, and then comes the
worst, the most devastating, the most fallacious reasoning of all, when
you figure: “That contract doesn’t expire for a few more months;
things; are bound to turn around in the meantime.”
“So it goes; so cut those losses short. In fact, many experienced
traders say if a position still goes against you the second day in, get
out. Cut those losses fast, before the losing position starts to infect
you, before you “fall in love” with it. The easiest way is to inscribe
across the front of your brain, “Cut my losses fast.” Use stop loss
orders, aim for a Rs. 5000 per contract loss limit…or whatever works for
you, but do it.
17.Let profits run. Now to the “letting profits run” side of the
equation. This is even harder because who knows when those profits will
stop running? Well, of course, no one does, but there are some things to
consider. First of all, be aware that there is an urge in all of us to
want to win…even if it’s only by a narrow margin. Most of us were raised
that way. Win – even if it’s only by one touchdown, one point, or one
run. Following that philosophy almost assures you of losing in the
futures markets because the nature of trading futures usually means that
there are more losers than winners. The winners are often big, big, big
winners, not “one run” winners. Here again, you have to fight human
nature. Let’s say you’ve had several losses (like most traders), and now
one of your positions is developing into a pretty good winner. The
temptation to close it out is universally overwhelming. You’re sick
about all those losses, and here’s a chance to cash in on a pretty good
winner. You don’t want it to get away. Besides, it gives you a nice warm
feeling to close out a winning position and tell yourself (and maybe
even your friends) how smart you were (particularly if you’re beginning
to doubt yourself because of all those past losers).
18.That kind of reasoning and emotionalism have no place in futures
trading; therefore, the next time you are about to close out a winning
position, ask yourself why. If the cold, calculating, sound reasons you
used to put on the position are still there, you should strongly
consider staying. Of course, you can use trailing stops to protect your
profits, but if you are exiting a winning position out of fear…don’t;
out of greed…don’t; out of ego… don’t; out of impatience…don’t; out of
anxiety…don’t; out of sound fundamental and/or technical reasoning…do.
“You can avoid the emotionalism, the second guessing, the wondering,
the agonizing, if you have a sound trading plan (including price
objectives, entry points, exit points, risk-reward ratios, stops,
information about historical price levels, seasonal influences,
government reports, prices of related markets, chart analysis, etc.) and
follow it. Most traders don’t want to bother, they like to “wing it.”
Perhaps they think a plan might take the fun out of it for them. If
you’re like that and trade futures for the fun of it, fine. If you’re
trying to make money without a plan – forget it. Trading a sound, smart
plan is the answer to cutting your losses short and letting your profits
run.
19.Do not overstay a good market. If you do, you are bound to overstay a bad one also.
20.Take your lumps. Just be sure they are little lumps. Very
successful traders generally have more losing trades than winning
trades. It’s just that they don’t leave any hang-ups about admitting
they’re wrong, and have the ability to close out losing positions
quickly.
21.Trade all positions in futures on a performance basis. The
position must give a profit by the end of the second day after the
position is taken, or else get out.
22.Program your mind to accept many small losses. Program your mind to “sit still” for a few large gains.
23.Learn to trade from the short side. Most people would rather own
something (go long) than owe something (go short). Markets can (and
should) also be traded frown the short side.
24.Watch for divergences in related markets – is one market making a new high and another not following?
25.Recognize that fear, greed, ignorance, generosity, stupidity,
impatience, self-delusion, etc., can cost you a lot more money than the
market(s) going against you, and that there is no fundamental method to
recognize these factors.
26.Learn the basics of futures trading. It’s amazing how many people
simply don’t know what they’re doing. They’re bound to lose, unless they
have a strong broker to guide them and keep them out of trouble.
27.Standing aside is a position. Patience is important.
28.Client and broker must have rapport. Chemistry between account
executive and client is very important; the odds of picking the right
Account Executive (AE) the first time are remote. Pick a broker who will
protect you from yourself…greed, ego, fear, subconscious desire to lose
(actually true with some traders). Ask someone who trades if they know a
good futures broker. If you find one who has room for you, give him
your account.
29.Sometimes, when things aren’t going well and you’re thinking about
changing brokerage firms, think about just changing AEs instead. Phone
the manager of the local office, let him describe some of the other AEs
in the office, and see if any of them seem right enough to have a first
meeting with. Don’t worry about getting your account executive in
trouble; the office certainly would rather have you switch AEs than to
lose your business altogether.
30.Broker/client psychology must be in tune, or else the broker and
client should part company early in the program. Client and broker
should be in touch repeatedly, so when the time comes, both parties are
mentally programmed to take the necessary action without delay.
31.Most people do not have the time or the experience to trade
futures profitably, so choosing a broker is the most important step to
profitable futures trading.
32.When you go stale, get out of the markets for a while. Trading
futures is demanding, and can be draining – especially when you’re
losing. Step back; get away from it all to recharge your batteries.
33.Thrill seekers usually lose. If you’re in futures simply for the
thrill of gambling, you’ll probably lose because, chances are, the money
does not mean as much to you as the excitement. Just knowing this about
yourself may cause you to be more prudent, which could improve your
trading record. Have a business-like approach to the markets.
34.Anyone who is inclined to speculate in futures should look at
speculation as a business, and treat it as such. Do not regard it as a
pure gamble, as so many people do. If speculation is a business, anyone
in that business should learn and understand it to the best of his
ability.
35.Approach the markets with a reasonable time goal. When you open an
account with a broker, don’t just decide on the amount of money, decide
on the length of time you should trade. This approach helps you
conserve your equity, and helps avoid the Las Vegas approach of “Well,
I’ll trade till my stake runs out.” Experience shows that many who have
been at it over a long period of time end up making money.
36.Don’t trade on rumors. If you have, ask yourself this: “Over the
long run, have I made money or lost money trading on rumors? O.K. then,
stop it.
37.Don’t trade unless you’re well financed…so that market action, not
financial condition, dictates your entry and exit from the market. If
you don’t start with enough money, you may not be able to hang in there
if the market temporarily turns against you.
38.Be more careful if you’re extra smart. Smart people very often put
on a position a little too early. They see the potential for a price
movement before it becomes actual. They become worn out or “tapped out,”
and aren’t around when a big move finally gets under way. They were too
busy trading to make money.
39.Never add to a losing position. Stay out of trouble, your first loss is your smallest loss.
40.Analyze your losses. Learn from your losses. They’re expensive
lessons; you paid for them. Most traders don’t learn from their mistakes
because they don’t like to think about them.
41.Survive! In futures trading, the ones who stay around long enough
to be there when those “big moves” come along are often successful.
42.If you’re just getting into the markets, be a small trader for at
least a year, then analyze your good trades and your bad ones. You can
really learn more from your bad ones.
43.Carry a notebook with you, and jot down interesting market
information. Write down the market openings, price ranges, your fills,
stop orders, and your own personal observations. Re-read your notes from
time to time; use them to help analyze your performance.
“Rome was not built in a day,” and no real movement of importance
ends in one day. A speculator should have enough excess margin in his
account to provide staying power so he can participate in big moves.
44.Take windfall profits (profits that have no sound reasons for occurring).
45.Periodically redefine the kind of capital you have in the markets.
If your personal financial situation changes and the risk capital
becomes necessary capital, don’t wait for “just one more day” or “one
more price tick,” get out right away. If you don’t, you’ll most likely
start trading with your heart instead of your head, and then you’ll
surely lose.
46.Always use stop orders, always…always… always
