- Follow the trends. This is probably some of the hardest advice for a trader to follow because the personality of the typical futures trader is not “one of the crowd.” Futures traders (and futures brokers) are highly individualistic; the markets seem to attract those who are. Very simply, it takes a special kind of person, not “one of the crowd,” to earn enough risk capital to get involved in the futures markets. So the typical trader and the typical broker must guard against their natural instincts to be highly individualistic, to buck the trend.
- Know why you are trading the commodity markets. To relieve boredom? To hit it big? When you can honestly answer this question, you may be on your way to successful futures trading.
- Use a trading system, any system, and stick to it.
- Apply money management techniques to your trading.
- Do not overtrade.
- Take a position only when you know where your profit goal is and where you are going to get out if the market goes against you.
- Trade with the trends, rather than trying to pick tops and bottoms.
- Don’t trade many markets with little capital.
- Don’t just trade the volatile contracts.
- Calculate the risk/reward ratio before putting a trade on, then guard against holding it too long.
- Establish your trading plans before the market opening to eliminate emotional reactions. Decide on entry points, exit points, and objectives. Subject your decisions to only minor changes during the session. Profits are for those who act, not react. Don’t change during the session unless you have a very good reason.
- Follow your plan. Once a position is established and stops are selected, do not get out unless the stop is reached or the fundamental reason for taking the position changes.
- Use technical signals (charts) to maintain discipline – the vast majority of traders are not emotionally equipped to stay disciplined without some technical tools.
Archives of “profit goal” tag
rss10 Steps to Profitable Trading
- 1. Manage Risk: Learn to trade a manageable portion of you portfolio (I recommend to risk less than 2% of you overall portfolio equity on each trade). Always establish a risk/reward ratio before making a trade. Without the ratio, how do you know your risk?
- 2. Understand Position Sizing: All traders must learn to know “how much” to trade on each position. Do not overtrade or you will runt he risk of ruin. Position sizing is rule number one of managing risk.
- 3. Cut Losses: Do not allow losses to run wild. You must learn to cut losses and understand that losses are a part of the game, a large part of the game. Check you ego of winning at the door. We are here to make money, not go undefeated. Play sports if you want to keep score with a record rather than your bankroll.
- 4. Learn when to Sell: You must learn when to sell. Selling is more important than buying as it ties directly to risk management. Use stops if you haven’t yet developed the discipline to get out at your predetermined stop or profit goal.
- 5. Average up in Price: I will never hesitate to add shares in a stock that is moving higher (see Mastercard) but I always avoid averaging down. Remember, cut losses and never throw good money after bad because we know that’s a quick way to the poorhouse.
- 6. Have Patience: It takes years to master trading as an advanced skill; even then, you are never done learning or adapting.
- 7. Buy 52-week Highs, not 52-Week Lows: Don’t be afraid to buy stocks making new highs. The garbage sits at the bottom of the market along with poor earnings, weakness and further downward pressure. Buy strength and the momentum moving higher. Stocks are typically priced at the levels they trade for good reason. This applies to most premium items in life.
- 8. Ignore the Talking Heads: Do not listen to the stories, gossip and rumors flying around on network television, stock forums or the major financial newspapers. It a surefire route to bad information and clueless advice. Do your own research; you’ll come out much further ahead. This applies to crappy blogs and internet sites as well.
- 9. Understand Technical Analysis: Fundamental analysis is a solid part of my trading system but technical analysis brings in the dough. You must learn, understand and use technical analysis on a daily basis. Fundamental analysis tells me what and technical analysis tells me when, where and how.
- 10. Control Emotions: Enough said – You must control your emotions or the game is over!Understand you!
Quantifying Low/Risk High/Reward Trades
Q: How can do you quantify odds of 10-1 in your favor before you make a trade? Is it your profit goal is 10x more than your stop loss? 10 indicators that look good and one that does not look good? Can you share with the group how you get to 10-1 odds? It may not be an easy answer, but I wonder if you could expand.
Think of it this way. After I’ve performed my analysis of all of the things I look at (fundamentals, technicals, sentiment) and list them out at the price I’m considering making a specific trade, they must without any measure of doubt be highly tilted in my favor. In other words, it must fit my definition of what I consider to be a low/risk high/reward setup. For every negative I can find that argues against a specific trade, I need more than just a few positives to offset it.
What results from this analysis is that the total number of trades I make is lower than most, but the percentage of average winning trade is higher as well as my win/loss average. (more…)
To become a profitable trader, you must
- 1. Manage Risk: Learn to trade a manageable portion of you portfolio .Always establish a risk/reward ratio before making a trade. Without the ratio, how do you know your risk?
- 2. Understand Position Sizing: All traders must learn to know “how much” to trade on each position. Do not overtrade or you will runt he risk of ruin. Position sizing is rule number one of managing risk.
- 3. Cut Losses: Do not allow losses to run wild. You must learn to cut losses and understand that losses are a part of the game, a large part of the game. Check you ego of winning at the door. We are here to make money, not go undefeated. Play sports if you want to keep score with a record rather than your bankroll.
- 4. Learn when to Sell: You must learn when to sell. Selling is more important than buying as it ties directly to risk management. Use stops if you haven’t yet developed the discipline to get out at your predetermined stop or profit goal.
- 5. Average up in Price: I will never hesitate to add shares in a stock that is moving higher but I always avoid averaging down. Remember, cut losses and never throw good money after bad because we know that’s a quick way to the poorhouse.
- 6. Have Patience: It takes years to master trading as an advanced skill; even then, you are never done learning or adapting.