Trading the Futures Market is an extremely risky proposition, and while there are no guarantees of success in futures trading, not following the rules below could blow your chances of success.
RULE #7: Trade with a risk reward ratio of 1-1/2 or greater. A trader can make excellent returns by winning just over 50 percent of their trades with a good risk reward ratio. Use money management discipline to limit losses and live to trade another day, week, month and year of opportunities.
RULE #6: Protect your profits when your position is on the plus side. You can lock in your profits by exiting a portion of your trade or moving your stop-loss for protection against an adverse move.
RULE #5: Accept your losses and move on to the next trade. Losses are a fact of life in the commodity futures market. Accepting losses can be one of the hardest things for a new trader to overcome. Build good trading habits and continue to learn from failures when they occur by reviewing trades.
RULE #4: Set realistic goals. New traders sometimes make unattainable goals that are extremely challenging to achieve Make your daily, weekly and monthly goals reasonable based on your account value. When you attain your goals, raise them slightly so you can continue to build on success.
RULE #3: Never overleverage your account. The commodity futures market allows traders to leverage their investment using margin. The initial margin deposit controls contracts for 5% to 15% of their cash value. Used properly leverage can increase returns. Misusing leverage will compound your losses very quickly.
RULE #2: Always trade with a stop-loss order in place. No exceptions, the stop loss order limits your losses. When you enter a trade, decide how much risk you can tolerate and set a protective stop loss. Placing a stop-loss order immediately after you enter a position eliminates the emotions that arise if a trade goes against you. Remember, the goal is to limit your losses and control risk.
RULE #1: Always trade with risk capital money you can afford to lose. The commodity futures market can be very volatile and is considered to be speculative. ONLY trade with money that if lost would not affect your lifestyle.