So you have decided that you want to trade futures. What are the steps that you need to follow in order to be successful? Outlined below are the some of the steps considered necessary for minimizing risk in futures trading. It is important that the steps be followed in this order or you will be paying heavily for your education.
The first and possibly most important aspect of futures trading is to get educated. Do you know what a futures contract is? Do you understand the obligations inherent in the purchase or sell of a futures contract? Do you understand the degree of leverage involved in futures trading? The answers to these and other questions must be clearly understood before you start trading futures. You may find the answers to these questions disturbing and decide that futures trading is not for you. It is best to learn this before committing money to the market. To answer these questions and get a general knowledge of the futures industry, you should visit the futures/commodity exchanges’ web sites. At these sites you will find trading tutorials and futures contract specifications. There are also many courses offered through seminars and e-books. Some of these may be found on our links page.
So now you have learned all you can about the futures market and fill its time to get started. The first thing that must be done is development of the trading plan. In this plan you will specify the criteria for entering a trade and the rational for the trade. Next specify how the trade will be managed including such factors as percent of equity to commit to the trade, the amount of risk, and the time you will stay in the trade. Once you have designed a trading plan, you will need to paper trade until implementation of the plan becomes second nature. Through this process you will develop a feel for the market and an understanding of your emotions as you trade the system. Once you have paper traded to the point of making a profit consistently on a weekly basis, then you're ready to commit money to your plan.