Stick to The Plan

Trading the futures market is inherently risky, and regardless of the size of your account or the perceived risk of your positions, the chances of regular wayward trades is high. It’s a dog eat dog world, and you need to make sure over the long haul your returns from successful positions outstrip your losses to a satisfactory degree.

A fundamental part of trading futures, or any derivative for that matter, is having an appropriately robust plan in place – a strategy that you can adhere to in order to guide your trading decisions. A trading plan is put together by a trader usually at the outset of a new futures trading strategy, and should be constantly subject to review depending on your performance and objectives. As you become more familiar with the markets and the different trading strategies and techniques, you should begin to get a feel for the types of things that might form the parameters of your trading plan.

By doing the theory work in coming up with a plan you can implement and follow, you can give yourself the optimum chance of succeeding over time, assuming your approach to risk and your trading strategy checks out.

Having a trading plan cannot in itself make you a good trader, but it can certainly make you better, and can make decision making much easier. Suppose you were down on the day and were pondering your next move. A trading plan can highly where you’re at in terms of returns, and what the objective strategy should be in that situation in order to preserve or maximise your trading capital. At these high-risk, turning-point moments, having a plan in place can be crucial to ensuring a positive overall trading outcome.

Taking A Horse To Water

It’s all well and good to trumpet the advantages of having a trading plan, and most experienced traders will have quickly learned the importance of strategy and maintaining an objective lens when viewing trading performance. An altogether different matter is ensuring you implement and follow your trading strategy to a sufficient degree to deliver results.

In theory, a trading plan should demonstrate, by reference to trading strategies and markets, the manner in which you will and should trade to yield an overall profit once losses have been taken into account. On paper, you should be confident with the plan you have in place, and the techniques and decisions you will be making to deliver a return on your futures trading.

When it comes to implementation, many traders go one of two ways. Most commonly, they disregard the plan altogether, and trade one transaction at a time in a lust for quick profits. Some traders swing in the polar opposite degree, following their trading plans to the letter, to a fault. While a degree of discretion should always be maintained for dealing with unforeseen market circumstances, you should by and large tend towards following your plan. This will breed a heightened degree of consistency into your trading, and will eliminate much of the discretion and on-the-spot decision making that can so often spell disaster for futures traders.

The trading plan is not an optional extra – it’s essential if you’re serious about generating a return on your investment capital from the futures markets. Like a business plan, a trading plan not only helps iron out theoretical issues around your trading strategy, but also enables you to keep a firm grasp on the bigger picture, removing much of the subjectivity and discretion from the mix.

Take time to prepare a plan with strategies and trading behaviours you can comfortably manage over time, and don’t be scared to review your plan as you become more experienced or your objectives change. Ultimately, you should remember to consistently reference your plan, and to stick to the trading rules and guidelines set down in the calm, away from the heat of the trade.

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