Do you know, what is the most important aspect of successful futures trading?
Is it identifying the trading opportunity?
Is it proper entry into the market?
Is it the trading “tools” you are using?
Is it an exit strategy that is the most important aspect of trading?
The answer is: None of the above (although an exit strategy is close).
The most important factor in successful futures trading is money management. One still has to be savvy at chart forecasting and-or fundamental analysis, but it’s the money-management factor that will make or break a futures trader. The huge leverage involved with trading futures absolutely requires pinpoint money managing.
Surviving in the futures market absolutely requires practicing sound money management. Even a rookie trader who starts out with a hot hand will eventually find that at least some trades are not going to go his way. And if he has not employed good money- management principles on those losing trades, he will likely have squandered his trading profits and his entire trading account.
Conversely, the novice trader who uses good, conservative money management techniques will be able to withstand some losses and be able to trade another day. The ability to take a loss and trade another day is the key to survival–and ultimate success– in the futures trading arena.
Here’s an important point to consider, regarding money management and successful futures trading: Most successful futures traders will tell you that during the span of a year they have more losing trades than winning trades. Then why are they successful? It is because of good money management. 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 bigger winning trades will more than offset the more numerous smaller losers. Good money management allows for that to happen.
Here are just a few very general money-management guidelines:
For smaller-capitalized traders, don’t commit more than one-third of your trading capital to one trade.
For medium- and larger-capitalized traders, you should not commit more than 10% of your capital to one trade.
The larger your trading account, the smaller your commitment should be to one trade. Smaller-capitalized traders, by necessity, have to commit a larger percentage of their capital to one trade.
Use tight protective stops in all your trades. Cut your losses short and let the winners ride the trend.
Never, never, never add to a losing position.
Your risk-reward ratio in a futures trade should be at least three to one. In other words, if your risk of loss is Rs. 1,000, your profit potential should be at least Rs. 3,000.
Is it identifying the trading opportunity?
Is it proper entry into the market?
Is it the trading “tools” you are using?
Is it an exit strategy that is the most important aspect of trading?
The answer is: None of the above (although an exit strategy is close).
The most important factor in successful futures trading is money management. One still has to be savvy at chart forecasting and-or fundamental analysis, but it’s the money-management factor that will make or break a futures trader. The huge leverage involved with trading futures absolutely requires pinpoint money managing.
Surviving in the futures market absolutely requires practicing sound money management. Even a rookie trader who starts out with a hot hand will eventually find that at least some trades are not going to go his way. And if he has not employed good money- management principles on those losing trades, he will likely have squandered his trading profits and his entire trading account.
Conversely, the novice trader who uses good, conservative money management techniques will be able to withstand some losses and be able to trade another day. The ability to take a loss and trade another day is the key to survival–and ultimate success– in the futures trading arena.
Here’s an important point to consider, regarding money management and successful futures trading: Most successful futures traders will tell you that during the span of a year they have more losing trades than winning trades. Then why are they successful? It is because of good money management. 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 bigger winning trades will more than offset the more numerous smaller losers. Good money management allows for that to happen.
Here are just a few very general money-management guidelines:
For smaller-capitalized traders, don’t commit more than one-third of your trading capital to one trade.
For medium- and larger-capitalized traders, you should not commit more than 10% of your capital to one trade.
The larger your trading account, the smaller your commitment should be to one trade. Smaller-capitalized traders, by necessity, have to commit a larger percentage of their capital to one trade.
Use tight protective stops in all your trades. Cut your losses short and let the winners ride the trend.
Never, never, never add to a losing position.
Your risk-reward ratio in a futures trade should be at least three to one. In other words, if your risk of loss is Rs. 1,000, your profit potential should be at least Rs. 3,000.
