 | Buy low and sell high.
 | This may sound obvious, but since it's the only way to earn trading profits, it bears
repeating. Also, don't forget that in the futures markets you can do the reverse-sell high
and buy low-just as easily. Bulls start their trades with a long (buy) position, while
bears are initially short (sellers). |
|
| Determine the right size for your trading account.
| The funds you put into a trading account should be completely discretionary. In other
words, ask yourself if you can afford to lose whatever you invest in that account and
possibly more. Savings for college, retirement, or emergencies should not be included. |
|
| Set definite risk parameters.
| Before you enter into a trade determine how much of a loss you're willing to accept. You
can express this as a dollar figure or as a percent of the margin amount. In either case,
you should always keep some money in reserve. By setting limits up front, you'll lessen
the risk of emotions dictating your decisions if the market happens to turn against you.
Wishful thinking could easily drive you deeper into trouble, but hard and fast parameters
are difficult to ignore. |
|
| Pick the right contracts.
| There are many futures contracts to choose from and several things to consider when
deciding which ones are right for you. |
| Volatility-Futures contracts that experience wider daily trading ranges are
considered more volatile and more risky. Some traders prefer a more volatile contract
because of the cost of trading (commission fees) is the same, yet the potential for profit
can be greater. Of course, the risk for loss is also greater. |
| Liquidity-Make sure that the futures contract you select has enough volume and
open interest to ensure that you can exit your position just as easily as you entered it. |
| Contract Size-Larger contracts often carry greater risk (although this also
depends on the contract's tick size and average trading range). If your trading account is
relatively small, you may want to consider using MidAm contracts instead. This way you can
participate in one or more futures markets with a smaller capital commitment. |
| Margins-Margin levels are a function of a contract's size and price volatility.
While you may be philosophically comfortable trading several markets, the size of your
account and the margin requirements may limit your selection of which futures contracts to
trade. |
|
| Diversify.
| Rather than exposing your entire trading account to a position to one futures contract,
it is sometimes more prudent to take smaller positions in several contracts. At the same
time, don't trade too many markets at once, or you'll have a difficult time tracking your
positions and following the fundamental information and/or technical indicators for each
market. |
|
| Have a trading plan.
| Before you actually enter into a futures position, develop a plan to guide your decision
based on careful analysis of the market(s) you plan to trade. Following are some of the
issues you'll want to evaluate: |
| What is my goal with each trade? (To hit a given entry and exit price? To capitalize on
an anticipated market indicator? To ride a trend for a specified period of time?) |
| What fundamental and/or technical factors will steer my plan? |
| What types of orders will I use? (in particular, consider the use of stop orders to
enforce your risk parameters.) |
| What systems will I use to monitor market developments and my positions? |
|
| Stick to it. Discipline is key to successful trading.
| Don't let rumors or offhand remarks undercut your confidence. If you've put serious
thought and analysis into your plan, it's likely to be more sound than isolated comments
made by others. At the same time, be willing to recognize when conditions have
legitimately changed and adjust your plans. |
|
| Don't trade in and out too much.
| Because every trade in futures markets comes with a price tag-namely commission
charges-you'll want to avoid any plan that has you constantly jumping in and out of the
market. Try to focus your efforts instead on making fewer well-timed trades. |
|
| Begin by paper trading.
| There's no better way to learn than to have your own money on the line, it's still a
good idea to practice first by trading on paper. Pick a couple of markets to follow and
experiment with your trading plan. This is also a good way to become familiar with the
price quotations, the market terminology, and the general behavior of a particular futures
contract. |
|
| Select a good broker.
| Your broker plays a vital role in your trading success. Make sure that you've discussed
the level of support you'll be given and the fees you'll be charged. While fees can vary
considerably, it's generally true that you get what you pay for. Full-service brokers
provide more in the way of guidance and research support. Discount brokers leave all the
decisions in your lap but charge less to execute your trades. The size of your account or
your trading volume may also impact the fees you'll be charged. |
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