I love futures trading... because done correctly, you can't lose!
Ok, I may have lost a lot of you right there... and I admit, that sounds a bit hokey, but while you can lose on individual trades, you'll ultimately win in the long run if you follow two golden guidelines:
1 - Have adequate trading capital
2 - Always use reasonable stop-loss orders
First off, you've got to have enough trading capital to even consider trading. While you don't have to have a ton 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.
If your stop-loss orders will usually exit you from the market with no more than a $500 loss on the trade, then you need 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.
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.
It's happened all too often, That's why I have a simple rule... Never cancel a stoploss order. Never. Got it? 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 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.
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.
