Futures trading is a great arena for traders that have had success with equities to graduate to when they're ready to take on a itsybitsy more risk in search of more profits. But just like stocks or forex, in order to be thriving in futures trading, you need to have a plan that gives you an edge and helps you keep your losses small while maximizing your winners. Yeah, that's the same old guidance you're bound to hear about developing a principles for trading any asset class, but it's especially true with futures, where the use of leverage can right on magnify our winners, but also put us at risk for losing more than our introductory investment.
In fact, let's consider that lesson amount one when it comes constructing a futures trading principles from the ground up. Traders should be pragmatic and deliberate when inspecting futures trading. Just because you've been thriving with stocks, forex or options doesn't mean you'll find the same success with futures. In other words, make sure that you're in a position to dispell the possible risks related with this kind of trading and make sure the volatility that is prevalent in futures is something you can financially and mentally handle.
Narrow Your Focus For thriving Results
One of the great things about the world of futures trading is the large range of products that investors can trade. If you like trading indexes, you can trade futures on the Dow Jones industrial Average, the Nasdaq and S&P 500 among other Us indexes. You can even trade futures on some of the major European indexes. If bonds are your cup of tea, there are futures available on assorted Us government-issued bonds. For forex traders, there are futures available on single currencies and if you still love stocks, you can trade single-stock equity futures. Of course we cannot forget commodity futures, which will give you passage to gold, crude oil, soybeans, grains and a host of other commodities.
While we would easily prefer to have choices when investing, all the choices in the world of futures can be dizzying and trying to trade all of these products would require more than one pair of eyes. Select a join of futures products to start with and focus your energies there when your principles is in its nascent stages. Perhaps, as you become more experienced and your profits grow, you can add more products, but stick with just two or three to start. That narrow focus will keep you disciplined and focused on the best trades.
Back-Test Your Strategies, Please
You naturally cannot go into futures trading blind, so testing your strategies before you start can save you a lot of heartache (and money). Make sure your back-test is comprehensive. Depending on what goods you're trading, you'll want to back-test at least six months of data if not more. To get the most optimal results out of your back-test, you'll want to encompass a range of market conditions, position sizes and stop-loss parameters.
While it may sound mundane, we cannot stress adequate the significance of knowing your system's strengths and weaknesses before setting it loose on a live account.
Decide On A Few Indicators...
And stick with those. Keep it simple. The choices among indicators that are available to futures traders are almost as assorted as the products themselves. Again, with all these choices, we want to find just a few indicators that we're comfortable with and understand well and stick with those.
Deciding on what indicators to use depends on your trading style. If you're a trend follower, it might be best to stick with fascinating averages and use the Adx indicator. Some traders focus on volume performance and here we would watch on balance volume and the advance/decline distribution. Momentum traders would likely be comfortable with Parabolic Sar and Stochastics, whereas traders that hunt for overbought and oversold conditions would probably be most comfortable using the Relative strength Index (Rsi).
Indicators are beneficial and futures traders shouldn't be without them, but you should consider them to be a bountiful buffet. If you consume too much, you'll be sorry in the end.
Remember Why You Have A principles In The First Place
Consider your principles a protective measure, an assurance course if you will, first and foremost, and a profit generator second. Your principles should consist of strict rules to keep your losses small. Possibly if you're a tech guru, you can automate your principles to implement stop-loss orders depending on the market you're trading and size of your trade. Regardless of how you compose your system, it must consist of protection. Your principles should keep you in the game, not run you out in the first inning. Holding those losses small will keep you in the game for a long time.
An Introduction to Developing a Futures Trading system
