Risk management. The insurance of your futures trading business

Risk management. The insurance of your futures trading business

Risk management. The insurance of your futures trading business. There are many books out there that talk about risk management, and for a good reason. Risk management is KEY to your trading success. It acts as the insurance of your online futures trading business. I will try to give you here the basic RULES needed in futures trading to manage risk. Rule 1:

The Stop loss order:

It is a market order that takes you out of the market immediately after the price, at where you were willing to lose, is touched. ALWAYS SET your stop loss orders. They are like your car insurance and the most important aspect in risk management. It must be set right below your Demand Level, as near as possible to your entry price, in order to get the best risk rewards ratio when you are buying. If you are selling The stop loss order must be set right above your Supply Level, as near as possible to your entry price in order to get the best risk rewards ratio. The risk reward ratio , is the amount of money you are willing to lose in order to find if your profit target is reached. In other words, the amount of money you are willing to lose to get your profit target. This ratio is pretty important in risk management. A minimum of 1 to 1.5 risk/rewards ratio means that, for example, you risk 1 point to get a profit target of 1.5 points. Rule 2:

The Exit price or profit target (Limit order):

It is a sell or buy limit order. If you bought a futures contract you then set a sell limit order to exit your position when price reaches a Supply level that you could have defined using the futures trading system. If you sold a futures trading contract (you are short) you enter a buy limit order to “buy” or “cover” your short position once price reaches a Demand level that you have defined using the futures trading system. It is very important to set profit target prices in the right place (where your next level is situated). Set them at the nearest Supply level if you bought a futures contract and want to be conservative. If you sold a futures contract set it at the nearest Demand level if you want to be conservative. Aiming for the next further level of Supply or Demand after the nearest is possible, and 70 % of the time, price travel up or down to those places. But, you risk your profits in case a reversal happens at the nearest Supply or Demand level. Rule 3:

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Daily Target Down:

Another point in risk management for futures trading is the daily target down. Make sure that you estimate how much you are wiling to lose for one day, so if you get to that limit you stop trading completely for that day. What I do and what I recommend is the following: Risk 3 % of your account daily, that means that for a 10 000$ account your “target down” or maximum amount to lose is 300 $. Take a max. of 3 bad trades in a row . If you have 3 trades in a row that resulted in a lose. Stop trading for the day. If you feel anxious or “want” to make money no matter what. Do NOT trade that day. This 3 aspects for daily target down have helped me over time with risk management. They are simple. But watch out, they are not easy to follow. (just relax ! that is key in trading, coupled with the fun of the “job”). Rule 4:

Last rule for risk management. NEVER risk more than 1 % of your account in a single trade. If your account is 10 000 $, risking 100 $ is the maximum for that trade. This makes sure you have plenty of opportunities, which you will, and also reduce stress at a significant level and keep the risk management of your account extremely “fit”. ***PLEASE, A BIG WARNING HERE MY FRIEND for risk management.*** ALWAYS ALWAYS place trades that have at least a 1 to 1.5 risk reward ratio, never less than that. If you see a trade and it has a 1 to 1 ratio DO NOT trade. Always use a 1 to 1.5 Risk/Rewards Ratio at a MINIMUM if not more. Good is 1 to 2 (risk 1 to get 2) Risk/Reward. And very well is 1 to 3 of Risk/Reward or even more. This assures us that if you are wrong one time, with a minimum of 1 to 1.5 Risk/Reward, you can get back on your feet with a profit in one trade. The better the Risk Reward, the better risk management you have . Let’s look at the same day we analyze in trading analysis when we searched for Supply and Demand Levels in the futures trading system. The Chart…(Click to enlarge)

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In the above chart you can see the first 2 risk management rules applied, the other 2 depend on the account size and yourself: Trade number 4 analyzed in trading analysis. The black arrow is the entry price to buy (go long) at the V-Spike with a hammer from level numbered 1 found in the futures trading system, with a risk reward of 1 to 3, we risk 1 to get 3 points. The red arrow signals the stop loss order below the level numbered 1, if hit, we lose one point. The green arrow signals the exit price (limit order to sell) at level numbered 2. If hit, we win 3 points. Trade number 5 analyzed in trading analysis. The black arrow is the entry price to buy (go long) at the double bottom from level numbered 1 found in the futures trading system, with a risk reward of 1 to 1.5, we risk 1 to get 1.5 points. The red arrow signals the stop loss order below the level numbered 1, if hit, we lose one point. The green arrow signals the exit price (limit order to sell) at level numbered 2, if hit, we win 1.5 points. Trade number 6 analyzed in trading analysis. The black arrow is the entry price to sell (go short) at the Inverted V-Spike from level numbered 4 found in the futures trading system, with a risk reward of 1 to 2.5, we risk 1 to get 2.5 points. The red arrow signals the stop loss order below the level numbered 4, if hit, we lose one point. The green arrow signals the exit price (limit order to buy or cover) at level numbered 2, if hit, we win 2.5 points. Well my friend, this finishes up our risk management rules for online futures trading. Remember this rules are extremely important for your trading success, apply them like a soldier and they will pay you back. You can now go and continue exploring online futures trading

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