2 Steps to Profitable Futures Trading

By: Halston

I advocate futures trading... because executed correctly, you can't lose!

All right, perhaps that's a huge stretch. It is possible to lose cash. However, I truly believe from my own experience that anyone will not lose money in the markets as long as he or she follow 2 simple guidelines:

Now before I share these with you I have to caution 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 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 on a shoestring
2 - Use (and never cancel) stoploss orders

While you don't need tons of money to be successful in trading, you should have enough to ride out the inevitable loss. To give you an idea of how much you should have, always consider having (at least) 10x your average loss.

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 trader I knew advised me that the total loss on three consecutive losing trades should never be more than 1/3 of your trading account. So if on average you were risking $1,000 per trade, then 3 losing trades would add up to $3,000, suggesting a starting account of at least $9,000 to $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. 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 loads of "reasons" to cancel or move their stop. That would be fine except these are seldom 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.

And those are the key foundations of successful trading. I know they're not as sexy as getting fancy entry and exit formulas, but I'd be doing you a huge disservice if I neglected them.

Article Source: http://articleblender.com

Halston Adams is a retired futures broker who stumbled onto his recipe for generating impressive returns by studying successful traders. Find out more about his trading approach at: futures trading today.

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