I might be on a bit of a tangent here, however......
The futures market can be a powerful risk management tool as well as a profit center.
Two common mistakes made in all markets that lead to the stories of margin calls and large losses are:
1. Not having or executing an exit plan.
2. Trading against the trend.
1. Not having or executing an exit plan.
A common misconception is that the success of the trade is a result of what you buy and when you buy it.
I argue that success is based on when you sell it.
Let me explain.
Before any trade is entered, I decide when I am getting out on a loss and position size accordingly. The common mistake made is choosing your exit on a profit target, when the initial exit should be when you realize that you were wrong in your thesis. Creating and executing your trade plan is vital to your success. If your position turns profitable, then you quickly move your stop to reduce or eliminate your losses.
Let your winners run and cut your losses short.
I presented an example of this with a CBOT wheat trade a few months ago. The trade turned profitable with my stops raised until the trend on my timeframe changed and the stop was hit.
Again, I believe that the success of a trade is based on when you exit; not what you buy and when you buy it.
The next point addresses how choosing what you buy and when you buy it can increase your probability of success.
2. Trading Against the Trend
As we know, hedging can be a powerful risk management tool.
However, I question why one would deliberately take a loss on a hedge.
Trading is easy but extremely difficult; however, understanding your timeframe combined with trend analysis can dramatically increase your probability of success.
Consider how much easier it is to swim with the current than against it.
When the trend changes, exit your position. You can always re-enter later.
Sure one can hope that the market will reverse in your favour; however, one does not know if or when that will happen.
Hopium, when relied on, usually precedes the destruction of your balance sheet.
As an ex-investment banker from London once told me, "It is ok to be contrarian, as long as you do not try to be."
https://www.klarenbach.ca
The futures market can be a powerful risk management tool as well as a profit center.
Two common mistakes made in all markets that lead to the stories of margin calls and large losses are:
1. Not having or executing an exit plan.
2. Trading against the trend.
1. Not having or executing an exit plan.
A common misconception is that the success of the trade is a result of what you buy and when you buy it.
I argue that success is based on when you sell it.
Let me explain.
Before any trade is entered, I decide when I am getting out on a loss and position size accordingly. The common mistake made is choosing your exit on a profit target, when the initial exit should be when you realize that you were wrong in your thesis. Creating and executing your trade plan is vital to your success. If your position turns profitable, then you quickly move your stop to reduce or eliminate your losses.
Let your winners run and cut your losses short.
I presented an example of this with a CBOT wheat trade a few months ago. The trade turned profitable with my stops raised until the trend on my timeframe changed and the stop was hit.
Again, I believe that the success of a trade is based on when you exit; not what you buy and when you buy it.
The next point addresses how choosing what you buy and when you buy it can increase your probability of success.
2. Trading Against the Trend
As we know, hedging can be a powerful risk management tool.
However, I question why one would deliberately take a loss on a hedge.
Trading is easy but extremely difficult; however, understanding your timeframe combined with trend analysis can dramatically increase your probability of success.
Consider how much easier it is to swim with the current than against it.
When the trend changes, exit your position. You can always re-enter later.
Sure one can hope that the market will reverse in your favour; however, one does not know if or when that will happen.
Hopium, when relied on, usually precedes the destruction of your balance sheet.
As an ex-investment banker from London once told me, "It is ok to be contrarian, as long as you do not try to be."
https://www.klarenbach.ca
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