The following materials describe an investment in futures. You should be aware that Futures& options trading is not suitable for all individuals. The degreeof leverage available can lead to large profits as well as largelosses. Past performance is not indicative of future results. If you donot acknowledge the risks described above, the following materialsshould not be used for the purposes of making an informed decisionregarding an investment in futures or options.
The 12 Golden Rules for Successful Trading
1. Adopt a definite trading plan.
Because of the emotional stress that is inherent in any speculativesituation, you must have a predetermined method of operation, whichincludes a set of rules by which you operate and adhere to, thusprotecting you from yourself. Very often, your emotions will tell youto do something totally foreign or negative to what your market tradingplan should be. It is only by adhering to a preconceived formula thatyou can resist the emotional temptations and stresses that areconstantly present in a speculative situation.
2. If you're not sure, don't trade.
If you're in a trade and feel unsure of yourself, take your loss orprotect your profit with a stop. If you are unsure of a position, youwill be influenced by a multitude of extraneous and unimportant detailsand will probably end up taking a loss.
3. You should be able to be right 40% of the time and still show handsome profits.
In speculating, it would be folly to expect to be right every time.An individual with the proper trading techniques should be able to cuthis losses short and let his profits run so that even being right lessthan half the time will show excellent profits. This point isre-emphasized in Rule Four.
4. Cut your losses and let your profits ride.
The basic failing of most speculators is that they put a limit ontheir profits and no limit on their losses. A man hates to admit he'swrong. Therefore, an individual will often let his loss ride, becominglarger and larger in hopes that eventually the market will turn aroundand prove him correct. Then after a while, he begins hoping for a smallloss and gives up hoping for a profit. Human nature also dictates thatan individual wants to take his profit right away and thus provehimself correct. There is an old saying, "You never go broke taking asmall profit." But you'll certainly never get rich that way. Beingsatisfied with small profits is the wrong mental approach for makingmoney in speculation. If you are correct when entering a speculativesituation, you will know it almost immediately and will show a profitquickly. However, if you are wrong, you will show a loss and you shouldremove yourself from the situation quickly. Taking a small loss doesnot necessarily mean you were wrong in your thinking. It simply meansthat your timing was perhaps incorrect and that you should wait for thecorrect timing and situation to allow you to reenter the market.Remember, in any speculative situation, the market is the final judge.An individual must let the market tell him when he is wrong and when heis right. If you show a profit, ride it until the market turns aroundand tells you that you are no longer right, and, at that time, youshould get out...but not before! On the other hand, the market willalso tell you if you are wrong and it would be a serious mistake toargue with what it is saying.
5. If you cannot afford to lose, you cannot afford to win.
As we have stated in Rule Four, losing is a natural part of trading.If you are not in a position to accept losses, either psychologicallyor financially, you have no business trading. In addition, tradingshould be done only with surplus funds that are not vital to dailyexpenses.
6. Don't trade too many markets.
It is difficult to successfully trade and understand a specificmarket. It is next to impossible for an individual, especially abeginner, to be successful in several markets at the same time. Thefundamental, technical, and psychological information necessary totrade successfully in more than a few markets is more than theindividual has either the time or ability to accumulate.
7. Don't trade in a market that is too thin.
A lack of public participation in a market will make it difficult,if not impossible, to liquidate a position at anywhere near the priceyou want.
8. Be aware of the trend. ("The Trend is your friend")
It is vitally important that a trader be aware of a strong force inthe market, either bullish or bearish. When this force is at itsheight, it would be folly to attempt to buck it. However, one mustlearn to recognize when a trend is about to run its course or is near aperiod of exhaustion. By an ability to recognize the early signs ofexhaustion, the trader will protect himself from staying in the markettoo long and will be able to change direction when the trend changes.
9. Don't attempt to buy the bottom or sell the top.
It simply can't be done unless you have the aid of a crystal ball orsome other tool which could be peculiar to the mystic. Be content towait for the trend to develop and then take advantage of it once it hasbeen established.
10. Never answer a margin call.
This rule acts as a stop loss when your position has weakenedconsiderably. By dogmatically and arbitrarily adhering to this rule,you will be forced to get out of the market before disaster sets it. Itis often difficult to admit you're wrong and get out of the market(which you probably should have done well before you received a margincall). However, the presence of a margin call should act as a finalwarning that you have let your position go as far as you conceivablycan (unless the initial margin is out of line with the volatility ofthe contract).
11. You can usually sell the first rally or buy the first break.
Generally, a market which has just established a trend either up ordown will have a reaction and good interim profits can be made byrecognizing this reaction and taking advantage of it. For example, in abull market, the first reaction will generally be met by investorswaiting to buy the break. This support generally causes the market torally. The reverse is true of a bear market.
12. Never straddle a loss.
A loss by itself is difficult enough to accept. However, to lock inthis loss, thus making it necessary for you to be right twice ratherthan the once (which you previously found impossible) is sheerabsurdity.
While the following are not specific trading rules, they are general observations
which will aid the speculator in formulating an understanding of markets:
You must retain control of the situation and yourself.Do not allow your position to control you. It is a mistake to findyourself in a position larger than you can reasonable handle. When thisoccurs, you will find that the sheer size of the position, rather thanthe facts of the situation itself, affects your judgement.
The commodity does not know that you own it.You must remain impersonal in your trading. When you take a positionand you are wrong, remember it is better to get out immediately! Themarket will not feed badly about it if you do, but you will if youdon't.
The market always looks its worst at its bottom, and the best at the top.It is important to remember that before the market turns around, it isat its very worst. Therefore, be prepared to treat each day objectivelyby not allowing the emotional fever to carry over and cloud yourjudgment.
Equity...Equity...Equity...Not Cash. If aman is long from 100 points below the market and you are long from theopening that day, you both had the same amount invested in the marketfrom the time both of you were long. Therefore, if the market goes upten points, you each have made the same amount that day. If the marketgoes down 10 points, you have each lost the same amount. You should notbe confused by the fact that someone has taken a position before you.You must be concerned with your own situation primarily. Each day,start fresh. Your paper profits or losses from previous days should notenter into your decisions regarding the course of action you will take.
Treat paper profits as if they are your own money. They are! Naturally, the opposite also holds true.
THE RISK OF LOSS EXISTS IN FUTURES TRADING.
Please note: "Education Center" is designed to teach beginners about and how totrade the futures markets. However, before you begin trading on yourown, we strongly advise you to first trade with the assistance of anexperienced professional commodity broker. A broker can provide youwith many valuable functions to suit your choice. You may only want tohave a broker try to make sure you don’t make costly errors byincorrectly initiating and exiting a trade (a common error amongbeginning traders). On the other hand, you may want the broker to takea more active role: acting as a sounding board for your trades,providing his trading recommendations, research reports, charts, andother helpful trading tools. Or, you may want the broker to find you acommodity trading advisor that best meets your investment goals,affordability, and suitability to professionally manage your account.
Whatever your needs are, a United Futures Trading Broker is atrained professional, there to help and provide you the level ofservice that you want.Past performance is not necessarily indicative of future results. The risk of loss exists in futures and options trading.
