2 Steps To Futures Trading The Right Way

By: Halston
Do you know what the great thing about trading futures is? You can't lose!

All right, maybe that's a tiny exaggeration. It is possible to lose your shirt. But, I honestly believe - based on my own trading experiences over a quarter of a century - that anyone will not lose money in the futures markets as long as he or she follow 2 simple tenets:

1 - Have adequate trading capital
2 - Know where you're getting out - and use a stoploss order

First, adequate capital. You don't need tons of money to begin trading futures successfully, but you definitely need some. Here's a good guideline for trading capital - always have at least enough trading capital to cover at least ten times the amount of money that you are willing to risk on an average trade.

So if you normally risk $500 per trade, then you should have a minimum of $5,000 of capital on hand. If on average you expect to riskcloser to $1,000 per trade, then you having $10,000 in trading capital is recommended.

Here's another method of calculation - your total potential loss on three straight losing trades should be equal to no more than one-third of your total trading capital. For example: If you're going to risk an average of $1,000 per trade, then three straight losing trades would amount to a loss of approximately $3,000... therefore, your total starting stake should be at least $9,000 - $10,000.

We've focused a lot on losses, because they are critical to success. Although futures trading is risky, and nobody can be 100% certain of the outcome, the beautiful thing about it is that you can be wrong more than right and still be quite successful, as long as you can manage your risk.

That brings us to our 2nd point - Always use stoploss orders. Now I don't have any actual stats to back me up here, but from my own trading results, as well as from those I've witnessed from clients and peers, I'd wager that 90% of accounts were wiped out because someone "fell in love with" a trade, and instead of taking a calculated loss, people pulled their stoploss, and stayed in a trade hoping it would eventually go their way... unfortunately this usually ended bankrupting their trading account.

It's happened all too often, That's why I have a simple rule... Never cancel a stoploss order. It's as simple as that. I've seen it over and over... Whenever the market is close to stopping anyone out, they can come up with dozens of "reasons" to cancel or move their stop. That would be fine except these are seldom good reasons - they just appear to be at the time. Expect and take your losses... the best time is when they're cheap. This isn't about being right or wrong, it's about profitable trading.

And those are the key foundations of successful trading. I know they're not as sexy as getting fancy entry and exit formulas, but I'd be doing you a huge disservice if I neglected them.
Do you know what the great thing about trading futures is? You can't lose!
Halston Adams is a retired futures broker who learned the keys to generating enviable returns by studying successful traders. Check out more about his trading approach at: http://www.futures-trading-strategy.com today.