Perhaps the most important aspect of gaining trade rights is survival. That's number one. Unable to survive the difficult times, we were left without hope. Money and risk management may seem like a boring topic, but read on to see how exciting it can be once you learn the specific reasons and logic for using it. You'll never trade the same way again!
If you trade with 70% accuracy, you can risk about 10% on each instrument trade and survive bad flows. However, even a futures trader who is 70% accurate may be wrong more than 5 or 6 times in a row. The best traders risk less than 5% on each trade. This is what winning big bankroll is all about. Not to maintain large positions, but to survive difficult times and be able to trade another day.
Commodity futures professionals have day jobs and can't afford to blow up their accounts like hobby traders can. This is like playing poker and using the most chips on the table. Prospects smile at those who can stick around longer to change things up. Those with short lifespans due to lack of capital (taking on a lot of risk on each trade) must be “lucky” to make the run before their chips are gone. That's why you need a method that attempts to identify “high probability, low risk” trades. Remember this phrase: “Trade with high probability and low risk.”
If you have less funds in your commodity account than you want to trade, you may want to reduce your trading volume to gain a “big pocket” advantage. Most commodity futures and options traders can easily cut their regular position size in half and instantly become a better trader. Low stress and sustainability are just two of the many reasons to trade small.
Another point about loss. Whether you use a mental or physical stop loss order, this exit point should be determined based on the specific market setup or conditions and how much you feel you need to risk that day. You need to start by determining how far the market has to go to undo your bad setup.
This is not a low risk setup if the price has to go a long way to make you wrong. Isn't that the case now? Only after determining this distance can you determine how many contracts or options to purchase in the future. If your money management parameters suggest you risk $1,000 and the distance to prove you wrong is $500 in a contract, this means you can only hold two futures contracts. That's it.
Many commodity futures traders do the opposite by saying they want to buy 10 futures contracts. Now that you have $1,000 at risk, where do you stop? The station will probably be very close and it will be like donating money. This is just another form of overtrading. Commodity markets don't care how much money you want to risk. Your only concern is at what point you are wrong, and that is the point where you want to throw in the towel for a predetermined loss.
You can make the market fight for your money by going long with small positions, breaking through stubborn support or resistance, or not diverging anywhere for a while. Whatever you do, don't risk more than your typical risk amount into a commodity position, stop tight and think, “This time is different.”
Play the game for the long term, executing each trade as perfectly as possible. The toughest competition is always trying to get your money's worth by doing things right. Don't make it easy for them. Get in the game, trade small, and execute your plan perfectly every time. This will give you an edge over a wide audience. Regular speculators are generally poor traders with little discipline and planning. If you get better than them, you have a chance to move on. Don't worry about the stars. There will be times when we eat lunch. No one always wins.
I place great emphasis on loss strategies. Because if you can significantly reduce your losses, your profits will take care of themselves. I understand that losses are part of the commodity futures and options game and that no trading system is perfect. Demanding commercial perfection from yourself is futile and a sure path to failure. You don't have to be the best trader in the world to make money. All you have to do is be better than most traders!
great deal!
Futures and options contracts involve significant risk of loss and may not be suitable for all types of investors. Only risk capital should be used.
