Timing

In futures trading, being right about the direction of prices isn't enough. It is also necessary to anticipate the timing of price changes. The reason, of course, is that an adverse price change may, in the short run, result in a greater loss than you are willing to accept in the hope of eventually being proven right in the long run.

Example: In January, you deposit initial margin of $1,500 to buy a May wheat futures contract at $3.30--anticipating that, by spring, the price will climb to $3.50 or higher no sooner than you buy the contract, the price drops to $3.15, a loss of $750. To avoid the risk of a further loss, you have your broker liquidate the position.

The possibility that the price may now recover--and even climb to $3.50 or above--is of no consolation. The lesson to be learned is that deciding when to buy or sell a futures contract can be as important as deciding what futures contract to buy or sell. In fact, it can be argued that timing is the key to successful futures trading.