Money Management for the Futures Trader
The most important factor in successful futures trading is money management. The ability to take a loss and trade another day is the key to survival--and ultimate success-- in the futures trading arena. A successful futures trader should be more an act of survival in the early going than scoring winning trades. Successful traders set tight stops to get out of losing positions quickly; and they let the winners ride out the trend. On the balance sheet, a few big winning trades will more than offset the more numerous small losers. Good money management allows for that to happen. Day trading is not a get rich scheme. It is serious business where you could lose everything within minutes because of wrong information. Before jumping into day trading, remember to do your homework first. Go to seminars on day trading, use simulations if possible and practice reading market indicators. To be a successful day trader, you do not just need luck. Knowledge and experience counts. Pick a few classical chart patterns and specialize in trading with them. You must have discipline and patience to wait for the patterns to develop correctly using only markets suitable for you size account. Additionally, you must apply strict risk management and have great tenacity to let your profits run on the good trades. Since strings of losses are inevitable regardless of your approach, you must control risk so you are not wiped out by consecutive losers. Experts agree that for proper risk management, you should limit risk to no more than about 1-2% maximum of your account equity. Make sure that no one trade is really going to affect your day trading float, positively or negatively. While novice traders spend all their time working on entries, seasoned traders know that the really difficult decisions in trading involve exiting profitable positions. Letting profits run on good trades is absolutely essential to long-term success. Winning traders understand that winning in the markets means "cash flow". More cash must come in than goes out, and anything that effects this should be considered. ANYTHING that affects bottom line profitability should be considered as a viable area of study to improve performance. Never, never, never add to a losing position, and every trade should be taken with professional care and planning. Losing traders focus on winning trades and high percentages of winners. Winning traders focus on losing trades, solid returns and good risk to reward ratios. The observation implies that it is much more important to focus on overall risk versus overall profit, rather than "wins" or "losses". When winning traders have a bad trade they spend time figuring out what happened and then they adjust their current methodology to account for this possibility next time. The most successful traders have a methodology or system that they use in a very consistent manner. Often, this revolves around one or two techniques and market approaches that have proven profitable for them in the past. While successfully trading commodities with limited capital presents the highest challenge in trading, you can do it if you recognize the problems and construct a trading plan to accommodate the realities. You need to position yourself so that you can endure long strings of losses, and maintain your day trading system. If you can survive some losses in your day trading, the profits will come. CONSISTENCY is a key factor to profitability. ------------------------------------------------------------------------------------------------
About The Author:
Linda Wainman is author of the "Keeping It Simple Day Trading System"
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