Okay, traders: Do you know what is the most important aspect of successful futures trading? Is it identifying the trading opportunity? Is it proper entry into the market? Is it the trading "tools" you are using? Is it an exit strategy that is the most important aspect of trading? The answer is: None of the above (although an exit strategy is close).
The most important factor in successful futures trading is money management. One still has to be savvy at chart forecasting and-or fundamental analysis, but it's the money-management factor that will make or break a futures trader. The huge leverage involved with trading futures absolutely requires pinpoint money managing.
Over the years, I have listened to the best traders in the business talk about what makes them succeed in this challenging arena, and nearly every one emphasizes the importance of sound money management. A few years ago I attended a TAG (Technical Analysis Group) trader's conference in Las Vegas. One of the featured speakers stressed that becoming a successful futures trader should be more an act of survival in the early going than scoring winning trades.
Surviving in the futures market absolutely requires practicing sound money management. Even a rookie trader who starts out with a hot hand will eventually find that at least some trades are not going to go his way. And if he has not employed good money- management principles on those losing trades, he will likely have squandered his trading profits and his entire trading account.
Conversely, the novice trader who uses good, conservative money management techniques will be able to withstand some losses and be able to trade another day. The ability to take a loss and trade another day is the key to survival--and ultimate success-- in the futures trading arena.
Here's an important point to consider, regarding money management and successful futures trading: Most successful futures traders will tell you that during the span of a year they have more losing trades than winning trades. Then why are they successful? It is because of good money management. Successful traders set tight stops to get out of losing positions quickly; and they let the winners ride out the trend. On the balance sheet, a few bigger winning trades will more than offset the more numerous smaller losers. Good money management allows for that to happen.
Good money management" is a relative principle. A good money- management practice for one trader might not be a good money- management practice for another. Here's a real-life example: I had a fellow email me a while back, saying he was up $3,000 in a sugar trade, and that his total trading account was $4,000. Although I don't provide specific trading advice to individuals, I told the trader that if I had only a $4,000 trading account and had racked up 3 grand in profits on one trade, I would seriously think about ringing the cash register on that trade and building up my account so that I could withstand those drawdowns and losers that will eventually occur.
The most important factor in successful futures trading is money management. One still has to be savvy at chart forecasting and-or fundamental analysis, but it's the money-management factor that will make or break a futures trader. The huge leverage involved with trading futures absolutely requires pinpoint money managing.
Over the years, I have listened to the best traders in the business talk about what makes them succeed in this challenging arena, and nearly every one emphasizes the importance of sound money management. A few years ago I attended a TAG (Technical Analysis Group) trader's conference in Las Vegas. One of the featured speakers stressed that becoming a successful futures trader should be more an act of survival in the early going than scoring winning trades.
Surviving in the futures market absolutely requires practicing sound money management. Even a rookie trader who starts out with a hot hand will eventually find that at least some trades are not going to go his way. And if he has not employed good money- management principles on those losing trades, he will likely have squandered his trading profits and his entire trading account.
Conversely, the novice trader who uses good, conservative money management techniques will be able to withstand some losses and be able to trade another day. The ability to take a loss and trade another day is the key to survival--and ultimate success-- in the futures trading arena.
Here's an important point to consider, regarding money management and successful futures trading: Most successful futures traders will tell you that during the span of a year they have more losing trades than winning trades. Then why are they successful? It is because of good money management. Successful traders set tight stops to get out of losing positions quickly; and they let the winners ride out the trend. On the balance sheet, a few bigger winning trades will more than offset the more numerous smaller losers. Good money management allows for that to happen.
Good money management" is a relative principle. A good money- management practice for one trader might not be a good money- management practice for another. Here's a real-life example: I had a fellow email me a while back, saying he was up $3,000 in a sugar trade, and that his total trading account was $4,000. Although I don't provide specific trading advice to individuals, I told the trader that if I had only a $4,000 trading account and had racked up 3 grand in profits on one trade, I would seriously think about ringing the cash register on that trade and building up my account so that I could withstand those drawdowns and losers that will eventually occur.
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