Don’t let anyone ever tell you the futures game is easy. I’ve been speculating in futures for 18 years, and it took me most of that time before I had any degree of success. I attribute successful futures trading to following certain steps. My guess is that these steps will work for you, too.
Step 1: Have a Plan
I’ve never seen someone build a house without detailed drawings, and I bet you haven’t either. To build a house, you need a plan. The same holds true for speculating in the futures market. Your opponent, the market, has a plan – to take all your money – so you need one, too.
There are 3 major pieces to a good plan. First, you must be specific with your investment goals. Second, you must determine what you are willing to invest to get it, by identifying the amount of time and money you will invest. Finally, know what you’ll risk to reach your goals. Are you willing to spend a year learning, or lose thousands of dollars before you start winning? Better to find that out now, upfront, before you invest the time and effort.
Step 2: Find a Strategy
Finding a viable strategy is the most difficult part of developing a trading system. You might not think that’s true, based on ads and infomercials you see, which show you how easy picking a strategy is. Alas, if it were only as easy as going to a free seminar in a hotel or visiting a website! In reality, finding a good strategy involves 3 main areas: skill assessment, research and detailed development.
The first part of determining how to reach your plan is to do an accurate, honest skill assessment. Done correctly, this will point you in the right direction. If you don’t do this assessment, you’ll be doomed to wander the “land of the losers.”
The second component of your strategy is research. Before you settle in on a strategy, you need to see what is out there, what is working today, etc. Keep your mind open, and you’ll soon find something that you like, and that has potential.
Finally, it’s time to get your hands dirty by doing detailed development. Whether you create a system yourself, or sign up with a service or an advisor, the key is to perform “due diligence.” Make sure you learn all you can, before you put real money on the line.
Step 3: Check and Double Check
Remember when you were in school and the teacher always said “check your work?” If you were like me, you thought checking it was something you didn’t need. Well, if you avoid checking your work before trading a strategy, you can easily fall into trouble.
Depending on the route you choose, there are many ways to double check your work. It might be as simple as checking your strategy code for math errors, or asking an advisor to back up claims with brokerage statements, or simply asking for references. Remember, it is your money, so take the time to thoroughly check everything out.
Step 4: Execute Your Strategy
At this point, you are ready to pull the trigger, and trade your strategy with real money. The key here is to plan your trade, and trade your plan. Simply put, once you develop a method or select an advisor, stick with it, without deviation, for at least three to six months. Anything less, and random chance could make a good strategy look bad. Give a strategy time to show its long term potential.
Step 5: Monitor and Adjust as Necessary
Once you start trading, it is essential that you monitor your results. One way is by keeping a trading log. Recording the details of trades, along with your thoughts and feelings, can be very helpful when you review your system performance. This log is especially powerful when you violate your system, as you likely will at some point. Reviewing why you violated your system may help you refine your signals to more closely match your psychology. The key here is to keep close tabs on your trading – otherwise, it can quickly get out of control.
Conclusion
So there you have it – the five steps to trading that I have used in my own trading. Don’t be surprised if it takes a year or more to move through the steps. My advice is to not rush through them. I obviously can’t guarantee that you’ll have favorable results, but I can tell you the steps work, and work well.
