2 Keys to Impeccable Futures Trading

By: Halston

Do you know what the most overlooked thing about trading futures is? You can't lose!

All right, maybe that is a tiny stretch. It is possible to lose money. However, I truly believe from my own experience that anyone won't lose money in the futures markets as long as he or she follow 2 simple guidelines:

Now before I tell you about them I must warn you that you probably won't like them... in fact you may have even heard them before... and if you have, I hope you take that as a testament to their importance. The reason I want to preface this is because I KNOW that people hate to hear it, but it is this same wisdom that professionals take and apply that make them the professionals they are. Now the 2 guidelines I want to share are:

1 - Don't trade under-capitalized
2 - Use (and never abandon) stoploss orders

First off, you've got to have enough trading capital to even consider trading. While you don't have to have a boatload of money to trade successfully, you should have enough to stay in the game. I always suggest to aspiring traders to have at least enough to cover 10 times the average amount you expect to be risking on any given trade.

So if you normally risk $500 per trade, then you should have a minimum of $5,000 of capital on hand. If on average you expect to riskcloser to $1,000 per trade, then you having $10,000 in trading capital is recommended.

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.

That brings us to a very key point - you will have losing trades. Trading is risky. I've never met anyone who has a perfect track record. But what makes futures trading great is that you don't need to be 100% correct to be successful - you can earn a fortune even if you're wrong more than you're right... if you know how to 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 very simple - Never cancel a stop-loss order. Never. Got it? Never. Believe me, when a market is close to stopping me out of a position at a loss, I can always halucinate at least a dozen "good" reasons to cancel or move my stop. The only problem is that they aren't good reasons - I'm just wanting them to be. They're merely rationalizations devised to help me cling to the vain hope that I was right, when the market is clearly indicating that I was wrong. Take your losses; take them early; take them when they're cheap and painless. There's nothing wrong with being wrong in your judgment about a market. The only shameful part is being unwilling to admit that you were wrong, and stubbornly clinging to a bad trade.

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Halston Adams worked as futures broker until he learned the keys to producing annual returns of 100%+ by studying successful traders. Learn more about his trading approach at: www.futures-trading-strategy.com today.

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