If you wish to be a successful futures or options investor, you must learn to control your losses. No talent that you develop as a trader will ever be as important to you as this. The formula for success in futures and options trading is: X (AP) – Y (AL) = SUCCESS OR FAILURE (X) is the number of profits that you have. (AP) is your average profit per trade. (Y) is the number of losses that you have. (AL) is your average loss per trade. You multiply the number of profits you have times the average of your profits to arrive at your total profits. You multiply the number of losses that you have times the average of your losses to arrive at your total losses. X (AP) equals total profits. Y (AL) equals total losses. Total profits minus total losses equals success or failure. Of this formula, the two most important letters to you are (AL). Why is the (AL) so important in your effort to achieve success. It is important because (AL) is the only element of this formula that you can control. Think about it for a while and you will see what I mean.
Archives of “futures and options” tag
rssChecklist for Day Traders
Here’s a list I came up with for the forgotten man, the hundreds of thousands of traders in stocks, futures and options.
Before the Trade
1. Do you know the name and numbers of all your counterparts, especially if your equipment breaks down?
2. When does your market close, especially on holidays?
3. Do you have all the equipment you’ll need to make the trade, including pens, computers, notebooks, order slips, in the normal course and in the event of a breakdown?
4. Did you write down your trade and check it to see for example that you didn’t enter 400 contracts instead of the four that you meant to trade?
5. Why did you get into the trade?
6. Did you do a workout?
7. Was it statistically significant taking into account multiple comparisons and lookbacks?
8. Is there a prospective relation between statistical significance and predictivity?
9. Did you consider everchanging cycles?
10. And if you deigned to do a workout the way all turf handicappers do, did you take into account the within-day variability of prices, especially how this might affect your margin and being stopped out by your broker? (more…)
Robert Meier's Eleven Rules
1. Ask yourself what you really want. Many traders lose money because subconsciously their goal is entertainment, not profits.
2. Assume personal trade responsibility for all actions. A defining trait of top performing traders is their willingness to assume personal responsibility for all trading decisions.
3. Keep it simple and consistent. Most speculators follow too many indicators and listen to so many different opinions that they are overwhelmed into action. Few people realize that many of the greatest traders of all time never rely on more than two or three core indicators and never listen to the opinions of others.
4. Have realistic expectations. When expectations are too high, it results in overtrading underfinanced positions, and very high levels of greed and fear – making objective decision-making impossible.
5. Learn to wait. Most of the time for most speculators, it is best to be out of the markets, unless you are in an option selling (writing) program. Generally, the part-time speculator will only encounter six to ten clear-cut major opportunities a year. These are the type of trades that savvy professionals train themselves to wait for.
6. Clearly understand the risk / reward ratio. The consensus is that trades with a one to three or one to four risk / reward ration are sufficient.
7. Always check the big picture. Before making any trade, check it against weekly and monthly as well as daily range charts. Frequently, this extra step will identify major longer-term zones of support and resistance that are not apparent on daily charts and that substantially change the perceived risk / reward ratio. Point & figure charts are particularly valuable in identifying breakouts from big congestion / accumulation formations. (more…)