Skip to main content

Basic Rules for Futures Traders: Part II

· Cut losses short. Most importantly, cut your losses short, let your profits run. It sounds simple, but it isn't. Let's look at some of the reasons many traders have a hard time "cuttings losses short." First, it's hard for any of us to admit we've made a mistake. Let's say a position starts going against you, and all your "good" reasons for putting the position on are still there. You say to yourself, "it's only a temporary set-back. After all (you reason), the more the position goes against me, the better chance it has to come back – the odds will catch up." Also, the reasons for entering the trade are still there. By now you've lost quite a bit; you sell yourself on giving it "one more day." It's easy to convince yourself because, by this time, you probably aren't thinking very clearly about the position. Besides, you've lost so much already, what's a little more? Panic sets in, and then comes the worst, the most devastating, the most fallacious reasoning of all, when you figure: "That contract doesn't expire for a few more months; things; are bound to turn around in the meantime."So it goes; so cut those losses short. In fact, many experienced traders say if a position still goes against you the second day in, get out. Cut those losses fast, before the losing position starts to infect you, before you "fall in love" with it. The easiest way is to inscribe across the front of your brain, "Cut my losses fast." Use stop loss orders, aim for a Rs. 5000 per contract loss limit...or whatever works for you, but do it.


· Let profits run. Now to the "letting profits run" side of the equation. This is even harder because who knows when those profits will stop running? Well, of course, no one does, but there are some things to consider. First of all, be aware that there is an urge in all of us to want to win...even if it's only by a narrow margin. Most of us were raised that way. Win – even if it's only by one touchdown, one point, or one run. Following that philosophy almost assures you of losing in the futures markets because the nature of trading futures usually means that there are more losers than winners. The winners are often big, big, big winners, not "one run" winners. Here again, you have to fight human nature. Let's say you've had several losses (like most traders), and now one of your positions is developing into a pretty good winner. The temptation to close it out is universally overwhelming. You're sick about all those losses, and here's a chance to cash in on a pretty good winner. You don't want it to get away. Besides, it gives you a nice warm feeling to close out a winning position and tell yourself (and maybe even your friends) how smart you were (particularly if you're beginning to doubt yourself because of all those past losers).


· That kind of reasoning and emotionalism have no place in futures trading; therefore, the next time you are about to close out a winning position, ask yourself why. If the cold, calculating, sound reasons you used to put on the position are still there, you should strongly consider staying. Of course, you can use trailing stops to protect your profits, but if you are exiting a winning position out of fear...don't; out of greed...don't; out of ego... don't; out of impatience...don't; out of anxiety...don't; out of sound fundamental and/or technical reasoning...do.You can avoid the emotionalism, the second guessing, the wondering, the agonizing, if you have a sound trading plan (including price objectives, entry points, exit points, risk-reward ratios, stops, information about historical price levels, seasonal influences, government reports, prices of related markets, chart analysis, etc.) and follow it. Most traders don't want to bother, they like to "wing it." Perhaps they think a plan might take the fun out of it for them. If you're like that and trade futures for the fun of it, fine. If you're trying to make money without a plan – forget it. Trading a sound, smart plan is the answer to cutting your losses short and letting your profits run.


· Do not overstay a good market. If you do, you are bound to overstay a bad one also.


· Take your lumps. Just be sure they are little lumps. Very successful traders generally have more losing trades than winning trades. It's just that they don't leave any hang-ups about admitting they're wrong, and have the ability to close out losing positions quickly.


· Trade all positions in futures on a performance basis. The position must give a profit by the end of the second day after the position is taken, or else get out.


· Program your mind to accept many small losses. Program your mind to "sit still" for a few large gains.


· Learn to trade from the short side. Most people would rather own something (go long) than owe something (go short). Markets can (and should) also be traded frown the short side.Watch for divergences in related markets – is one market making a new high and another not following?

Popular posts from this blog

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...

Liquidity Adjustment Facility

Liquidity adjustment facility (LAF) is a money market tool used by the central bank of a country (in India it is the Reserve Bank of India ), to infuse funds into the country's banking system when liquidity dries up. Again, in case there is excess liquidity, the central bank uses some tools to help banks manage their surplus liquidity. Usually the RBI uses the repurchase facility (called Repo ) to give short-term loans to banks to meet their temporary liquidity shortage. On the other, hand RBI uses reverse repo facility to help banks park their excess liquidity with it. Banks usually use various securities, which are approved by the RBI, as collateral when they take money from the RBI to meet their short term liquidity requirement     Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara...

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...

Jeevan Labh

 The Life Insurance Corporation of India has announced Jeevan Labh , its limited-premium, with-profits endowment plan .   It comes with a premium paying terms of 10, 15 and 16 years for corresponding policy tenures of 16, 21, and 25 years respectively. ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 83...

NRI from Canada and US Invest in Mutual Funds in India

Investing in Indian mutual funds by NRIs from US and Canada As of December 2016, eight Indian fund houses were accepting investments from US/Canada-based NRIs Most of the Indian mutual fund houses have stopped accepting funds from US and Canada based NRIs due to regulatory restrictions. This is because the Foreign Account Tax Compliance Act (FATCA) makes it compulsory for all financial institutions in the world to report comprehensive details of all transactions involving US/Canada residents, (including non-resident Indians) to the US & Canada Government. Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now