Link Futures Trading Rules

Main Page	LINK FUTURE'S TRADING RULES	Open an Acct

The same basic reasons why traders lose money can be found in almost every losing trader. through these points, perhaps you may recognize some of your strengths and weaknesses It is followed by some points to consider when you trade and in making a trading plan. It is intended as a short outline and for helpful hints that may help you become a more successful trader. Remember everybody can be a good trader but it takes work and discipline. It is a lot easier to be a bad trader which is why most people lose money. The pros work hard at trading and do it full time, it is their JOB they don’t take it lightly. Hope this helps. Marcel Link- Link Futures
1) NOT HAVING A TRADING PLAN OR RISK MANAGEMENT

Many futures traders simply trade without a plan. They do not define specific risk and profit objectives before trading and end up trading on a whim, even if they establish a plan, they “second guess” it and don’t have the courage stick to it out, particularly if the trade is a loss. Consequently, they overtrade and use their equity to the limit (are undercapitalized), which puts them in a squeeze and forces them to liquidate positions. Usually, they liquidate the good trades and keep the bad ones accepting large losses while taking small profits.

Many traders do not only pre-define offensive plans but they ignore defensive plans when an initial position is taken. A good plan must include well placed defensive points (stops) and predetermine exit criteria. These risk/exit parameters need to be as serious as possible. As they are what makes or breaks your trades. Not having a defensive trading plan is a lack of money management techniques.

Without a proper Money Management plan it is difficult to cut losers and let winning trades run. Many traders also overstay when the market goes against them, they are not flexible enough to change their minds or opinions when the trend is clearly against their positions Instead of limiting their losses, traders tend to add to losing positions.

Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That’s why they should have a plan first, and stick to it. Especially after a winning streak when traders are feeling confident that they can beat their systems. The result is emotional trading Which also leads to losses.

2) OVERTRADING

    Many traders overtrade with undercapitalized accounts. Traders often try to carry too big a position relative to their available capital, and trade too frequently for the size of the account. Too many traders are underfinanced, and get washed out during a normal market movement against them. Traders are often correct in their market views but have bad timing, and not enough capital to survive the shake out.
    Over trading is dangerous, and often stems from lack of planning. Futures traders tend to have no discipline, no plan, and no patience. They overtrade and can’t wait for the right opportunity. Instead, they seem compelled to trade on whims or out of boredom.
   Many traders lose by not taking losses in proportion to the size of their accounts. They are afraid if they exit their position they will post a loss or be undermargined to trade tomorrow, so they hold on in hopes of a turnaround. The fact here is that you are losing money whether or not you exit the position. As long as you keep your position you can't evaluate the market fairly and your small loss will most likely turn into a larger one.
    Lack of risk capital in the market means inadequate capital for diversification, use of proper stops, and staying power in the market.   Taking too big a risk with too little profit potential is a sure road to losses.
Successful traders usually have large accounts and never risk more 3% to 10% on any position This cant be done with a $3,000 account.
   Also a smaller account usually means you pay more in commissions and by over trading you can go through $3000 in commission in one or two months.

The one cardinal rule of trading should be: “Cut losses short. Let profits run.”

Most Traders do the opposite. They tend to get out of a rallying commodity too quickly, while holding losers too long. Many traders can’t (or don’t) take the small losses and admit they are wrong. They often stick with a small loser until it really hurts, then take the loss. To say well I've already lost $1,500 how much lower can it go, its due for a rebound is a mistake that will cost you more money. This is an undisciplined approach and goes back to money management, a trader needs to develop and stick with a system. Emotion makes many traders hold a loser too long. Many traders don’t discipline themselves to take small losses and big gains.
There is also a striking inability to stay with winners. Most traders are too willing to take small profits and, therefore, miss out on big profits. Most successful traders lose on 60% of there traders but they make the 40% count and its usually only just a few trades a year which really makes them their money. This takes patience. It sounds simple, but it takes discipline to trade correctly. This is hard whether you’re losing or winning.

Stops should be used but most traders don't really use them properly. Any one who trades with a tight stop will be stopped out in a normal market retracement. If you are trading bonds and you only want to risk $200 a trade. You'll find you will be stopped out most of the time. Traders tend to be able to pick the market tops and bottoms when they place a stop. Too many times they are long, place a stop below the market, they soon get stopped out and then the market soars. Stops should be placed at least 2 standard deviations from where the market is. They should also be place using a higher time frame. For example if you trade looking at 5 minutes charts place your stop using a 60 minutes or daily chart. If you trade using daily data look at weekly data to place your stop.
Stops should not be move when the market gets close them. Too many traders place stops them don’t want to take a loss and keep moving their stops as the market gets closer.
Stops should also be used in order to not let a winning position get away from you. In a trending market they should be moved with the trend this will eventually lock in some profits.
Even if you don't like to place stops you should have a predetermine point at which you'll get out of the market, stops help you do this.

   Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits.
Greed also leads to over trading by having too many trades on at one time and over trading for the amount of capital involved. Overtrading is a sure road to failure. Greed will make you start day trying just to try and “beat the market”, this is fine if its in your trading plan, but not if you are just blindly trying to make some extra dollars.
   Greed, in trying to pick tops or bottoms, is a frequent error. You don’t need to catch every penny of every move. You'll be much more successful in trading with the trend once its established.
   Greed also leads to improper use of pyramiding. Adding trades to winning position is okay but it should be done in proper proportions. Other wise you are too top heavy and one bad day can wipe out all your profits.

Trading against the trend is a common mistake, especially without reasonable stops, insufficient capital to trade with and/or improper money management . This is a major causes of large tosses in the futures markets Never say a market is too high or low. The market will tell you where it should be. Some traders are not willing to believe price action, and thus trade contrary to the trend. Some traders have a directional bias; for example, always wanting to be long. Even though the market is in a down trend this stubbornness is costly. They see every uptick as a sign of reversal and keep going long. They are not flexible enough to change their minds or opinions when the trend is clearly against their positions

Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market on too short a timeframe. Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between price fluctuations which reflect a fundamental change and those which represent an interim change often causes losses. They believe the market is too high and keep going short, this is not based on technical or fundamental analysis just their beliefs. Yet the market keeps going higher because that where it wants to or should be but the losing trader is firm on his beliefs and keeps losing.

    Wrongly Relaying Only On Fundamentals - Many traders don’t realize the news they hear and read has, in many cases, already been discounted by the market. Many traders get a fundamental case and hang onto it, even after the market technically turns. Only believe fundamentals as long as the technical signals follow. Both must agree.
Trading Volatile and Illiquid markets- These market will result in bad fills, limit moves and erratic price    movements usually against your position. And stops will be blown through.
    Not Diversifying- By trading more than one commodity you will help limit losses and spread your risks.
    Shorting Options- This can kill you if the market blows up.
    Listening to Brokers- They only care about commissions.

THE DIFFERENCE BETWEEN WINNERS & LOSERS
Take a look at these points and see how you stand. Do you have a winning attitude or losing one.
If it’s a losing one stop trading until you are refocused.

Winners learn from their mistakes, losers don't.
Winners take calculated risks. Losers just take risks
Winners learn to control their emotions. Losers have little or no control over their emotions.
Winners are always learning and improving. Losers don't have the time.
Winners have a set of rules to follow. Losers have no rules
Winners develop a plan to succeed. Losers don't have a plan to develop.
Winners use their strengths and minimize their weaknesses. Losers don't address their weaknesses.
Winners diversify their risks. Losers put all their eggs in one basket.
Winners don't blame anybody else for losing. Losers blame everyone BUT themselves.

Your trading plan doesn’t have to be complicated but it should be thought out. It should include both entry and exit rules. Whether you are day trader on long term position trader. Trading shouldn’t be done blindly . Having rules like only buying when the market is above the 20 day moving average and exit when the 9 day MA crosses below the 20 day MA is the start to good trading. A trading plan could be as simple as following the advice of a market newsletter or a more complicated system you have made or bought. But whatever it is, it should be back tested among different market situations. And most importantly once you have developed a good trading plan. STICK TO YOU RULES don’t try to out guess the markets or a good plan.

With out a good Money Management Plan a trading plan is useless.
When making a Money Management Plan remember the following goals.

1. Preserve capital-     You cant trade once your capital is gone.
2. Trade small at first- You'll will probably make mistakes early, keep them small.
3. You will lose on 60% of your trades- Don’t worry about it, every trade will not be a winner.
4. Its okay to lose money-    Just make the losses small.
5. Avoid large drawdowns-   Get out of losses quickly

Also remember that consecutive losses of 5 or 10 trades are not as rare you would believe, plan for a series of losing trades by devising an effective risk management plan & using stop orders.
Most successful traders lose money more than 60% of the time - Don't focus on losses, just follow the rules of your game plan and risk management system. It is critical to cut losses short. Small losses doesn’t always mean dollar amount but percentage of total capital and ideally this should be less than 3 percent per trade. With a 5,000 dollar account this is $150 and you really can't expect to trade with that tight a stop.

Use stop-loss orders but make sure they are well placed. Tight stops because you are undercapitalize and are scare to lose a lot are usually hit resulting in a loss.

If you do lose money today forget how much you lost. Your goal tomorrow is just to have more than you do at the end of today. Trying to recoup losses will result in losing your whole stake.

LEARN FROM YOUR MISTAKES
You will always make them, try not to repeat them. At the end of the day review your mentally review your trades and positions. Understand what you did right and wrong. Losing money because you were wrong is not a mistake, losing money because you didn’t follow your rules is a mistake. When reviewing your positions look at them with an unbiased view, ask yourself what you what do if you had no position. For example if you are long crude oil, try looking at as if you were thinking of entering into a new position, would you go long, short or stay out. Its important be honest here and married to your position. If you can do this you'll be surprised how much clearer you'll see the markets.

When To Increase Trading Size
Don’t increase trading size because of a streak of winners or losers. Trading size should be a related to how much you are willing to risk on trade relative to you’re account size. You don't always have to trade one lot, but you should always risk no more than x% of your capital on a trade usually 3- 10 percent. Then take that number into consideration when deciding how many contracts to put on. But never double your contract size to try and make back what you've lost or because you feel confident. Both of these will wipe out your account quickly.

INDIVIDUAL PSYCHOLOGY
All your trading decisions should be made after the market is closed Even for day traders your trading decisions (i.e.5 minutes MA crosses over 15min than buy) should all be made after market hours and implemented during the day. Emotions and FEAR are the enemy. They must be eliminated at all cost by making all your trading decision before the market is open. You keep your head must be clear during trading hours and can stay focused on your Game Plan and the opportunities presented in the market. This will prevent you from panicking.

Set objectives - define all outcomes and what you will do in each possible event. Determine a dollar amount or percentage you are willing to risk. Determine when you will take profits.

FOLLOW your trading plan & risk guidelines RELIGIOUSLY
Define a screening method for trade selection - buying low and selling high is NOT enough detail

Know how much you are willing to lose
Never have a drawdown of more than 12% of initial capital. It is EXTREMELY difficult to come back from a loss of investment capital greater than 25%
THE GEOMETRIC NATURE OF LOSING MONEY

% LOSS OF CAPITAL % GAIN REQUIRED TO RECOVER LOST CAPITAL
5%     5.3%
10%     11.1%
15%     17.6%
20%     25.0%
25%     33.3%
30%     42.9%
35%     53.8%
40%     66.7%
45%     81.8%
50%     100.0%
55%     122.0%
60%     150.0%