|
Secrets That Ensure Profits
By: Harald Anderson
The following article includes pertinent information that may cause you to
reconsider what you thought you understood. The most important thing is to study
with an open mind and be willing to revise your understanding if necessary.
This interesting article addresses some of the key issues regarding Futures
trading. A careful reading of this material could make a big difference in how
you think about futures markets and trading them.
How a strategic money management plan works is discipline, not magic. In the
market place it’s possible to be right, and to still lose money. In fact, it’s
pretty common. Traders who win on a high percentage of their trades often end up
with their capital eroded away, and left with nothing to show for their work.
They lose their gains because they don’t know how to manage their money.
Being a good manager of your own money is one of the most difficult of skills to
learn. But if you do not use good money management to bank profits, learn to
take small losses when you are wrong and control your use of margin, you will
lose it all. No matter how good of a trader you think you are, your first
priority needs to be protecting your capital if you want to be successful.
As a trader, your capital is the most valuable asset you have. It is your only
asset in the eyes of the market. Without it, you can’t work at all. For this
reason, bringing in no profits on a trade is better than losing any part of your
margined account. If your account is intact, you are alive and live to trade
another day. If your capital has suffered a loss your efforts for making gains
will wasted playing catch-up. The more you’ve lost, the longer it will take to
get back to where you started from, because now you have a smaller pile of
capital to work from. A smaller capital base means smaller percentage returns on
profits. Making 10% on a $5,000 account earns you $500, but if you’ve lost half
of that account and have only $2,500 left, making 10% on your money will earn
you only $250. You’d have to do that twice to make the same $500.
Sound money management has two main goals: to avoid losing money, and to avoid
missing profit opportunities. The first goal is straightforward. You want to
preserve your money and whatever profits you’ve accumulated. But you don’t just
want to keep your capital and let it go stagnant. You want to trade with it, to
continue to grow it and make your returns larger and larger. Not keeping your
money tied up in bad or problem trades for long periods of time will allow you
to not miss new profit opportunities when they come along. Failing to avoid
either of these will cost you
It's really a good idea to probe a little deeper into the subject of Futures.
What you learn may give you the confidence you need to venture into new areas.
Working to avoid losing those profit making opportunities isn’t quite as obvious
a goal. With the second goal in mind let’s compare the outcomes of two
money-management decisions. Trader X buys a futures position, expecting it to go
up, and finds that it doesn’t. However, he’s certain it will go up eventually,
and he’s incurred a small loss, so he decides to wait it out. He ends up holding
the position for two months before finally selling it. Trader Y buys the same
futures at the same time as Trader X, but once he sees that it isn’t going up,
he sells it at a small loss. He buys another futures position and makes a 10%
profit on it. His next trade loses 2%, but after that he makes 7 %, and then
loses 1%, and then gains 25% on a series of trades. Because the account is
growing and he makes gains on an ever larger base of capital each time, at the
end of two months, his account has grown quite handsomely, even though Trader Y
was WRONG 50% of the time.
Which money management decision turned out to be the best? While Trader Y made a
nice profit, Trader X not only lost time but also never made his money back.
Even if he had made his money back on that position, it’s hard to see how this
was a good use of his operating funds over the course of two months.
Clearly the goal of not tying up your capital in bad trades has an important
impact on your profits. Using sound money management will keep your trading
funds and your profits safe. Though it is a difficult skill to learn, once you
know how to practice good money management techniques, you can almost guarantee
that you will be a successful trader.
If you've picked up some pointers about Futures that you can put into action,
then by all means, do so. You won't really be able to gain any benefits from
your new knowledge if you don't use it.
More information can be found at http://www.futurestradingsite.com
About the Author:
Don Jesel is an established surviving futures day trader of 20 plus years and
web master for www.futurestradingsite.com
|
