Surprisingly, many
profitable speculators have success rates between 30% and 50%. Futures
traders are not successful because they predict prices well. They`re
winning because their profitable trades far exceed their losses. The truth
of the matter is all Futures systems win and lose.
Psychologically, this can make following a system difficult. Futures
market professionals achieve success in this environment by controlling
risk with money management rules. But, controlling risk goes against our
natural tendencies. Most Futures traders don`t want to manage risk, they
want to be right. Despite the proven fact that money management is so
important, when Futures traders first come to me, many of my clients focus
their time looking for the perfect entry. It`s their search for the Holy
Grail. They want a perfect Futures indicator.
Not only is this Futures indicator going to get them in right at the
bottom of the trend, but it`s also going to tell them at the exact point
at the top of the trend when to get out. Here`s the best part and about
this indicator: apparently, it can guarantee success and it`s never, ever
wrong.
Unfortunately, though I don`t like to disappoint my clients, I need to let
them know the hard truth. It does not matter whether you are trading in
the Futures or any other market, the simple fact is this; there is no
perfect indicator. Instead, there are carefully set money management rules
that will place you in control. With this control, you`ll be able to
follow the two cardinal rules in your Futures trading – you`ll be able to
let your profits run and cut your losses short.
Once these money
management rules are in place your system can be set on autopilot. You
won`t need to worry…
"Should I be holding this stock?"
OR
"Shouldn`t I be holding that type of stock?"
This uncertainty is what people are confronted with when they don`t have
their rules set for the Futures market. The end result is that small
losses end up being big losses.
To make matters worse, a few of these big losses strung together can have
a detrimental effect on your Futures trading capital. Unfortunately, it`s
much more difficult to trade to gain back money you have lost then it is
to trade with profits that you already have in hand. If things go to the
absolute extreme, you run the risk of wiping out your entire Futures
trading float, as many traders do when they first get started. But, with
your money management rules in place, you can ride out the ups and downs
of every Futures trading system and succeed where many fail.
