logo
  Join        Login             Stock Quote

The Trading Plan

 August 08, 2007 11:58 PM


 There are two major components of a trading plan: a method of price prediction which signals if and when to buy or sell a particular futures contract, and a risk management program which dictates the amount of money to risk on any trade, and specifies when to cut losses.

Price Prediction
Most traders tend to rely on some variation of fundamental or technical analysis to predict prices. Many also spend considerable time and energy attempting to identify new measurements or signals that provide the edge in predicting prices. Stories abound of traders who claim to have discovered proof-positive techniques for predicting prices, and then offer to sell the information to you for a price. In the experience of World Link Futures, genuine fool-proof techniques are very hard to come by, and our customers are advised to be very careful and skeptical of such grand claims.

[Related -3 US Updates Show Ongoing Growth]

Risk Management
Risk management establishes thresholds to limit loss on any individual futures position, and objectives at which to take profits. The relative size of losses and gains must be such that, over time, gains exceed losses so that trading is profitable. This, in turn, depends upon the frequency of loss relative to the frequency of gain.
Determining the exact amount of loss that should be tolerated before a futures position is closed depends upon several factors. The amount risked on any futures position depends upon the amount of margin in your account. It is often suggested that no more than 10% of total margin be risked on any one futures position. The amount risked also depends upon the volatility of the futures being traded: the greater the volatility, the more is risked since you want to be able to carry the position through transitory price movements, or "noise", and to not have to exit a position prematurely. The size of your average trading gain also determines to what level you should limit loss. You need to limit loss at a level such that, over time, losses do not exceed gains in the aggregate.



How Futures and Options Markets Work Common Types of Orders
iOnTheMarket Premium
Advertisement

Advertisement


Comments Closed


rss feed

Latest Stories

article image3 US Updates Show Ongoing Growth

Three economic updates today provide more evidence that moderate growth endures for the US. The numbers du read on...

article imageBuy These Solar Stocks Before They Snapback

Sometimes the market hands you a gift. And it would be foolish not to take it. Thanks to general market read on...

article imageInvestors Are Even More Euphoric And Confident.

As noted on the blog last Thursday, even though the market had been down for three straight weeks, last read on...

article imageThe Butterfly Machine

There’s a phenomenon called the Butterfly Effect. One common quotation is “It has been said that something read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.