Basic Rules - Future Trading

Follow the trends . This is probably some of the hardest advice for a trader to follow because the personality of the typical futures trader is not “ one of the crowd “ . The futures traders are highly individualistic ; the markets seem to attract those who are . Very simply , it takes a special kind of person , not “ one of the crowd “ to earn enough risk capital to get involved in the futures markets . So the typical trader and the typical broker must guard against their natural instincts to be highly individualistic . to buck the trend .

 Know , why you are in the markets . To relieve boredom ? To hit it big ? When you could honestly reply , you may be on your way to successful futures trading .
 Use a newsletter or system , and stick to it .
 Apply money management techniques to your trading .
 Do not overtrade .
 Take a position only when you know where your target is where you go to get out if the market goes against you .
 Trade with trends , rather than trying to pick the tops and the bottoms .
 Avoiding trading in many markets with a little capital .
 Avoid trading with volatile contracts .
 Calculate the risk/reward ratio before putting a trade on , then guard against the risk of holding it too long .
 Establish your trading plans before the market opening to eliminate the emotional reactions .
 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 . Do not change during the session , unless you have a very good reason .
 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 .
 Use technical signals to maintain discipline – the vast majority of traders are not emotionally equipped to say disciplined without some technical tools . Use discipline to eliminate impulse trading .
 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 .
 When you have successful a trade , fight the natural tendency to give some of it back .
 Use a disciplined trade selection system … an organized , systematic process to eliminate impulse or emotional trading .
 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 the profits .
 Cut losses short . Most importantly , cut your losses short , let your profits run . It sounds simple , but it is not . Let us look at the reasons that many traders have a hard time “ cutting losses short “. First , it is hard for any of us to admit that we have made a mistake . Let us say a position starts going against you , and all your “ good “ reasons for putting the position on are still here . You say to yourself , “ it is only a temporary set-back . After all 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 have lost quite a bit ; you sell yourself on giving it “ one more day “ . It is easy to convince yourself because on this time , you probably are not thinking very clearly about the position . Besides , you have lost so much already , what is 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 does not expire for a few months ; things are bound to turn around in the meantime . “
 “ So it goes ; so cut the losses short . In fact , many experienced traders say if a position still goes against you on 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 .
 Do not overstay a good market . If you do , you are bound to overstay a bad one also .
 Take you lumps . Just be sure that they are little lumps . Very successful traders generally have more losing traders than winning traders . It is just that they don't leave any hang-ups about admitting that they are wrong , and have the ability to close out losing positions quickly .
 Trade all positions in futures for 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 .
 Program your mind to accept any small losses . Program your mind to “ sit still “ for a few large gains .
 Learn to trade from the short side . Most people would rather own something than owe something . Markets can also be traded from the short side .
 Watch for the divergences in the related markets – is one market making a new high and another not following ?
 Recognize that fear , greed , ignorance , generosity , stupidity , impatience , self – delusion ,etc ., can cost you a lot more money than the market going against you , and that there is no fundamental method to recognize these factors .
 Learn the basics of futures trading . It’s amazing how many people simply don’t know what they are doing . They are bound to lose , unless they have a strong broker to guide them and keep them out of trouble .
 Standing a side is a position . Patience is important.
 Be more careful if you are 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 .
 Never add to a losing position . Stay out of trouble , your first loss is your smallest loss .