following materials describe an investment in futures. You should be
aware that Futures & options trading is not suitable for all
individuals. The degree of leverage available can lead to large profits
as well as large losses. Past performance is not indicative of future
results. If you do not acknowledge the risks described above, the
following materials should not be used for the purposes of making an
informed decision regarding an investment in futures or options.
The 12 Golden Rules for Successful Trading
1. Adopt a definite trading plan.
of the emotional stress that is inherent in any speculative situation,
you must have a predetermined method of operation, which includes a set
of rules by which you operate and adhere to, thus protecting you from
yourself. Very often, your emotions will tell you to do something
totally foreign or negative to what your market trading plan should be.
It is only by adhering to a preconceived formula that you can resist
the emotional temptations and stresses that are constantly present in a
2. If you're not sure, don't trade.
you're in a trade and feel unsure of yourself, take your loss or
protect your profit with a stop. If you are unsure of a position, you
will be influenced by a multitude of extraneous and unimportant details
and will probably end up taking a loss.
3. You should be able to be right 40% and still potentially show profits.
speculating, it would be folly to expect to be right every time. An
individual with the proper trading techniques should be able to cut his
losses short and let his profits run so that even being right less than
half the time could potentially still show profits. This point is
re-emphasized in Rule Four.
4. Cut your losses and let your profits ride.
basic failing of most speculators is that they put a limit on their
profits and no limit on their losses. A man hates to admit he's wrong.
Therefore, an individual will often let his loss ride, becoming larger
and larger in hopes that eventually the market will turn around and
prove him correct. Then after a while, he begins hoping for a small
loss and gives up hoping for a profit. Human nature also dictates that
an individual wants to take his profit right away and thus prove
himself correct. There is an old saying, "You never go broke taking a
small profit." But you'll certainly never get rich that way. Being
satisfied with small profits is the wrong mental approach for making
money in speculation. If you are correct when entering a speculative
situation, you will know it almost immediately and will show a profit
quickly. However, if you are wrong, you will show a loss and you should
remove yourself from the situation quickly. Taking a small loss does
not necessarily mean you were wrong in your thinking. It simply means
that your timing was perhaps incorrect and that you should wait for the
correct timing and situation to allow you to reenter the market.
Remember, in any speculative situation, the market is the final judge.
An individual must let the market tell him when he is wrong and when he
is right. If you show a profit, ride it until the market turns around
and tells you that you are no longer right, and, at that time, you
should get out...but not before! On the other hand, the market will
also tell you if you are wrong and it would be a serious mistake to
argue with what it is saying.
5. If you cannot afford to lose, you cannot afford to win.
we have stated in Rule Four, losing is a natural part of trading. If
you are not in a position to accept losses, either psychologically or
financially, you have no business trading. In addition, trading should
be done only with surplus funds that are not vital to daily expenses.
6. Don't trade too many markets.
is difficult to successfully trade and understand a specific market. It
is next to impossible for an individual, especially a beginner, to be
successful in several markets at the same time. The fundamental,
technical, and psychological information necessary to trade
successfully in more than a few markets is more than the individual has
either the time or ability to accumulate.
7. Don't trade in a market that is too thin.
lack of public participation in a market will make it difficult, if not
impossible, to liquidate a position at anywhere near the price you want.
8. Be aware of the trend. ("The Trend is your friend")
is vitally important that a trader be aware of a strong force in the
market, either bullish or bearish. When this force is at its height, it
would be folly to attempt to buck it. However, one must learn to
recognize when a trend is about to run its course or is near a period
of exhaustion. By an ability to recognize the early signs of
exhaustion, the trader will protect himself from staying in the market
too long and will be able to change direction when the trend changes.
9. Don't attempt to buy the bottom or sell the top.
simply can't be done unless you have the aid of a crystal ball or some
other tool which could be peculiar to the mystic. Be content to wait
for the trend to develop and then take advantage of it once it has been
10. Never answer a margin call.
rule acts as a stop loss when your position has weakened considerably.
By dogmatically and arbitrarily adhering to this rule, you will be
forced to get out of the market before disaster sets it. It is often
difficult to admit you're wrong and get out of the market (which you
probably should have done well before you received a margin call).
However, the presence of a margin call should act as a final warning
that you have let your position go as far as you conceivably can
(unless the initial margin is out of line with the volatility of the
11. You can usually sell the first rally or buy the first break.
a market which has just established a trend either up or down will have
a reaction and good interim profits can be made by recognizing this
reaction and taking advantage of it. For example, in a bull market, the
first reaction will generally be met by investors waiting to buy the
break. This support generally causes the market to rally. The reverse
is true of a bear market.
12. Never straddle a loss.
loss by itself is difficult enough to accept. However, to lock in this
loss, thus making it necessary for you to be right twice rather than
the once (which you previously found impossible) is sheer absurdity.
While the following are not specific trading rules, they are general observations
which will aid the speculator in formulating an understanding of markets:
You must retain control of the situation and yourself.
Do not allow your position to control you. It is a mistake to find
yourself in a position larger than you can reasonable handle. When this
occurs, you will find that the sheer size of the position, rather than
the facts of the situation itself, affects your judgement.
The commodity does not know that you own it.
You must remain impersonal in your trading. When you take a position
and you are wrong, remember it is better to get out immediately! The
market will not feed badly about it if you do, but you will if you
The market always looks its worst at its bottom, and the best at the top.
It is important to remember that before the market turns around, it is
at its very worst. Therefore, be prepared to treat each day objectively
by not allowing the emotional fever to carry over and cloud your
If a man is long from 100 points below the market and you are long from
the opening that day, you both had the same amount invested in the
market from the time both of you were long. Therefore, if the market
goes up ten points, you each have made the same amount that day. If the
market goes down 10 points, you have each lost the same amount. You
should not be confused by the fact that someone has taken a position
before you. You must be concerned with your own situation primarily.
Each day, start fresh. Your paper profits or losses from previous days
should not enter into your decisions regarding the course of action you
Treat paper profits as if they are your own money. They are! Naturally, the opposite also holds true.
THE RISK OF LOSS EXISTS IN FUTURES TRADING. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
note: This information is a treasure trove of highly informative
information designed to teach beginners about and how to trade the
futures markets. However, before you begin trading on your own, we
strongly advise you to first trade with the assistance of an
experienced professional Commodity Broker. A broker can provide you
with many valuable functions to suit your choice. You may only want to
have a broker try to make sure you don’t make costly errors by
incorrectly initiating and exiting a trade (a common error among
beginning traders). On the other hand, you may want the broker to take
a more active role: acting as a sounding board for your trades,
providing his trading recommendations, research reports, charts, and
other helpful trading tools. Or, you may want the broker to find you a
commodity trading advisor that best meets your investment goals,
affordability, and suitability to professionally manage your account.
your needs are, a Bright Commodity Broker is a trained professional,
there to help and provide you the level of service that you want.