Tips that Everyone Who Trades Futures Should Know

Success in the realm of futures trading may bring significant rewards, but errors can be quite expensive. Because of this, it’s crucial to have a plan in place before you begin trading. Here are seven suggestions for moving forward.

1. Make a trading strategy

The importance of the first piece of advice cannot be overstated: Before taking a position, properly plan your transactions. This entails putting an exit strategy in place in the event that the deal does not turn out as you expected.

Reduce the likelihood that you’ll have to make significant choices when already in the market and putting money at risk. You don’t want your decisions to be dictated by your feelings of fear or greed, which might tempt you to cling onto a losing position for too long or abandon a winning one too soon.

2. Keep your positions safe

Making an early commitment to an exit plan might shield you from substantial adverse actions. By choosing a price in their minds for when to close down a position and reduce their losses, too many traders attempt to utilize “mental stops.” Even for the most diligent traders, though, they are much too simple to overlook.

Think about using stop-loss orders while trading to strengthen your commitment. The concept is to first choose a bailout price, and then place a stop at that level.

You may put a main order and a protective stop at the same time using one-triggers-other (OTO) commands. The precautionary stop is automatically activated when the original order is fulfilled. This relieves you of the need to continuously monitor the market and the stress associated with placing your stop order at the appropriate moment.

3. Focus more closely, but not too closely

Avoid overextending yourself by attempting to track and trade several markets. The majority of traders struggle to stay on top of a few markets. Keep in mind that trading futures involves a significant time and energy commitment. Even the most seasoned trader may find it challenging to keep up with news, read market comments, and analyze charts.

4. Trading slowly

Don’t floor the accelerator if you’re just starting off with futures trading. When you’re just starting out, there’s no necessity to start trading five or ten contracts at once. Avoid the rookie error of utilizing your whole account balance to buy or sell as many futures contracts as you possibly can. Although some drawdowns are unavoidable, you should avoid building a sizable position where one or two poor transactions might leave you bankrupt.

5. Think both long and short term

Markets that are growing or sinking both provide trading chances. It’s in our instinct to hunt for market opportunities to purchase, or “go long.” However, you can excessively restrict your trading chances if you’re not also willing to “go short” a market. Here’s an illustration: Assume a trader decides to take a position by selling December crude oil futures at the present price of $50 per barrel in the hopes of subsequently purchasing the futures contract at a profit should the price of crude oil fall below $50 per barrel.

6. Understanding margin calls

If you get a margin call, you presumably did so as a result of holding onto a bad transaction for too long. So, take a margin deficiency as a sign that you’ve become emotionally tied to a trade that isn’t performing as expected. You could be better off entirely abandoning the losing trade than moving more money to cover the call or closing out open positions to lower your margin need.

7. Be persistent

Avoid becoming engrossed in market activity to the point that you lose sight of the bigger trading picture. Of course, you need to keep an eye on your available jobs, working orders, and account balances. But don’t rely on every market spike or downtick. You may not only drive yourself crazy, but you may also experience little zigzags or whipsaws that at first seem frightening and important but eventually turn out to be just intraday blips.

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