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2 Keys to Impeccable Futures Trading

By: Halston Do you know what the amazing thing about trading futures is? You can't lose!

I know that sounds crazy... and I'm not suggesting that you won't have drawdowns, what I am saying is that in the long run losing in futures trading can be sidestepped if traders would simply adhere to two simple trading rules:

Now before I tell you about them I must warn you that you may not like them... in fact you've probably even heard them before... and if you have, I hope you take that as a wakeup call 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 - Know where you're getting out - and use a stoploss order

First, start with enough capital. You don't need boatloads of money to trade futures successfully, but you do need some. Here's a good guideline for trading capital - always have at least enough trading capital to cover at least 10 times the amount that you are willing to risk on an average trade.

If your stop-loss orders will usually exit you from the market with no more than a $500 loss on the trade, then you should have at least $5,000 total trading capital. (Hey, if you can't pick one winner out of ten trades, you need more help than I can provide you with.) If your average risk/potential loss is closer to $1,000, then you should have about $10,000 of trading capital.

Here's another method of calculation - your total potential loss on three straight losing trades should be equal to no more than one-third of your total trading capital. For example: If you're going to risk an average of $1,000 per trade, then three straight losing trades would amount to a loss of approximately $3,000... therefore, your total starting stake should be at least $9,000 - $10,000.

We've focused a lot on losses, because they are directly tied to success. Although futures trading is risky, and nobody can be 100% certain of the outcome, the beautiful thing about it is that you can be wrong more than right and still be quite successful, as long as you can 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.

It's happened all too often, That's why I have a simple rule... Never cancel a stoploss order. Never. It's as simple as that. I've seen it over and over... Whenever the market is close to stopping anyone out, they can come up with hundreds of "reasons" to cancel or move their stop. That would be fine except these are never good reasons - they just appear to be at the time. Expect and take your losses... the best time is when they're cheap. This isn't about being right or wrong, it's about profitable trading.

Article Source: http://www.lifeweightloss.com

Halston Adams worked as futures broker until he stumbled onto his recipe for producing enviable returns from successful traders he befriended. Learn more about his trading approach at: 100% Gains today.

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