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7 Tips Every Futures Trader Should Know

7 Tips Every Futures Trader Should Know About Trading

Within the realm of trading in futures, the success of trade can result in substantial profits, but mistakes can be very expensive. This is why it’s essential to have a plan in place prior to beginning trading. 

Here are seven suggestions on how to go about it.

Improve knowledge of Future Trading

Here are seven ways to aid you in improving your knowledge of futures trading.

1. Establish a trading plan

The first point cannot be stressed enough Be sure to plan your trades before you begin an account. This is why you should not only have an objective for profit, and an exit strategy for the event that the trade turns against your position. Calculate the probability of profit you’ll get with the probability calculator.

The objective here is to reduce the chance that you’ll be required to make critical choices when you’re already trading and have the risk of losing money. Don’t let emotions such as greed and fear dictate your choices by tempting you into holding on to an unprofitable position for too long or leaving the profitable position too early. You can find the probability calculator here.

A meticulously designed trading strategy that includes risk-management tools, like stop-loss order, which we’ll discuss further bracket orders, will help you avoid the pitfalls. As an example, suppose you purchased one month’s worth of December silver for $20.00 for an ounce. With a bracket order, you could establish an exit for stop-loss for $18.00 per ounce and a profit exit with a price of $25.00 for each ounce. In this way, you’re trying to reduce your risk to just $2 per ounce while keeping a profit at $5 for each ounce.

2. Be sure to protect your position

A firm commitment to an exit strategy prior to the time you start can protect you from major counter-moves. Many traders attempt to employ “mental stops,” picking an amount in their minds to figure out when they’ll end trade and reduce their losses. They’re too simple to overlook even by the most well-trained traders.

To ensure that your commitment is more firm take a look at trading stop-loss orders. The concept is to choose an initial bailout date and then establish an amount for a stop.

One-Triggers and Other (OTO) orders permit the user to place the primary order as well as additional stop protection simultaneously. If the primary order is executed the protective stop, is activated automatically. This means you don’t have to be constantly monitoring the market and frees the stress about entering your stop-order at the correct time.

But remember that there isn’t a guarantee that the price of a stop-order will be within or near the price of the stop. Stops don’t security against losses. Markets may be swift through them. However generally speaking, in most instances, a stop can allow you to keep your losses to the level you can manage and help keep your emotions away from them.

3. You can narrow your focus But not too much

Don’t overstretch yourself by trying to keep track of and trade on too numerous markets. Many traders are busy keeping track of just some markets. Keep in mind that trading futures are a laborious task that demands a significant investment of time and effort. Reading charts, studying market commentary, and staying abreast of news can be an overwhelming task even for the most experienced trader.

If you attempt to trade and follow over a number of market segments, you’re going to run into a high possibility that you don’t give one market the amount of time or the attention they require. Also, trading in just one market could not be the best option also. As diversification of the stock market offers many benefits, there may be benefits in diversifying your futures trade also.

In this case, for instance, you believed that gold prices would fall, but you expected the market for cocoa to rise. If one of these assumptions proved wrong, but both were right it is possible to make up for a loss with an increase.

4. Make sure you are keeping track of your trading

If you’re just beginning to learn about trading in futures, do not step on the accelerator. There’s no reason for you to start trading just five or 10 contracts at once as you’re only beginning. Avoid the rookie mistake of using all the funds that you have in your account to purchase or sell as many futures contracts as you can. Drawdowns on occasion are inevitable therefore you must stay clear of opening a large account where only one or two poor trades could wipe you out financially.

Start by introducing a couple of contracts and then develop your trading strategy that isn’t strained by the additional pressure to manage large positions. Adjust your trading according to the needs and, if you discover an approach or style that is successful, you might consider increasing the size of your orders.

If you’re just starting out as a futures trader, or a veteran who’s hit an upswing You might want to consider the possibility of reducing your contract. In certain instances exchanges provide E-mini and Micro Emini futures contracts that are comparable to traditional futures products, except smaller. For instance, the CME Group, instance, offers its E-mini S&P 500 futures contract, which is similar to its flagship S&P 500 Futures Contract but it’s one-fifth the size. Similar mini contracts are available in the energy, grain currencies, currency, and metals industries.

After you’ve found a plan that you’re comfortable with, slowly increase the number of orders you place.

5. Think long and short

Opportunities for trading are present in both falling and rising markets. Human nature is to search for opportunities to purchase, and “go long” the market. However, if you’re not willing to “go short” a market and limit the opportunities for trading. Consider this scenario: you believe that prices for crude oil are likely to drop and plan to enter into a position by selling the December crude oil futures at the current rate of $50.00 each barrel in the hopes to purchase the futures contract later and earn a profit should futures price drop below $50.00 per barrel.

With the use of futures, you are able to trade the market or buy the market. You can first buy and then sell the contract to close your position. You can also sell first, then later purchase a contract to make up the difference. There’s nothing to distinguish between these two trades: No matter what the order you choose to sell or buy in it is required to provide the necessary margin for the market that you’re trading. Don’t miss the opportunities to short.

6. Learn from the margin calls

If you’re facing the margin loss, that’s likely because you’ve stuck with an unsuccessful trade for long enough. Consider putting up the possibility of a margin shortfall to serve to signal that you’ve been emotionally attached to a situation that isn’t performing as expected. Instead of transferring funds to cover the requirement or shrinking your open positions to lessen the margin requirement, it’s better off resigning from the losing position entirely. As the old expression in trading is, “cut your losses,” and keep an eye out for your next trading opportunity.

7. Be patient

Do not get caught in market activity that you forget about the bigger picture of trading. It is important to keep track of your work orders, open positions, and balances on your account. However, don’t rely on any downturn or increase that happens in your market. You’ll not only be a complete mess and lose your patience but you may also be caught in the middle of small whipsaws or zigzags which appear powerful and significant for a while but are just tiny blips.

Also, take a more long-term view. Extending the timeframe of your trades may be more effective than trying to trade every movement on the market.

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