BASIC TRAINING FOR

Futures
Traders
 DanielsTrading.com

Table of Contents

Introduction 3

Don’t Be Afraid To Be A Sheep. 4

Use Discipline To Eliminate Impulse Trading. 6

Cut Losses Short. 7

Let Profits Run. 8

Standing Aside Is A Position. Patience Is Important. 10

Thrill Seekers Usually Lose. 11

Approach the Markets with A Reasonable Time Goal. 11

Never Add To A Losing Position. 12

Disclosures 13

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Introduction

More than a thousand experienced futures brokers were asked what rules
they follow for successful futures trading, and more than five thousand
suggestions were received. Below is a list of the fifty rules (including sub-
points) they mentioned most often.

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Don’t Be Afraid To Be A Sheep.

1. Follow the trends. This is probably some of the hardest advice for a trader
to follow because the personality of the typical futures trader is not “one of
the crowd.” Futures traders (and futures brokers) are highly individualistic;
the markets seem to attract these types of people. Very simply, it takes a
special kind of person, not “one of the crowd,” to earn enough risk capital
to get involved in the futures markets. So the typical trader and the typical
broker must guard against their natural instincts to be highly individualistic,
to buck the crowd.
2. Know why you are in the markets. To relieve boredom? To hit it big?
When you can honestly answer this question, you may be on your way to
successful futures trading.
3. Use a system, any system, and stick with it.

4. Apply money management techniques to your trading.

5. Do not overtrade.

6. Take a position only when you know the boundaries of your profit goal and
where you will get out if the market turns against you.

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7. Trade with the trends, rather than trying to pick tops and bottoms.

8. Don’t trade many markets with little capital.

9. Don’t just trade the volatile contracts.

10. Calculate the risk/reward ratio before putting on a trade, then guard against
the risk of holding it too long.
11. Establish your trading plans before the market opens to eliminate
emotional reactions. Decide on entry points, exit points, and objectives.
Subject your decisions to only minor changes during the session. Profits are
for those who act, not react. Don’t change during the session unless you
have a very good reason.
12. Follow your plan. Once a position is established and stops are selected, do
not get out unless the stop is reached, or the fundamental reason changes
for taking the position.
13. Use technical signals (charts) to maintain discipline—the vast majority of
traders are not emotionally equipped to stay disciplined without some
technical tools.

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Use Discipline To Eliminate Impulse Trading.

14. Have a disciplined, detailed trading plan for each trade; for example, entry,
objective, and exit. Stick to this plan unless hard data changes. Disciplined
money management means intelligent trading allocations and risk
management. The overall objective is the year-end bottom line, not each
individual trade.
15. When you have a successful trade, fight the natural tendency to give some
of it back.
16. Use a disciplined trade selection system…an organized, systematic process
to eliminate impulse or emotional trading.
17. Trade with a plan—not with hope, greed, or fear. Plan where you will get in
the market, plan how much you will risk on the trade, and plan where you
will take your profits.

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Cut Losses Short.

18. Most importantly, cut your losses short; let your profits run. It sounds
simple, but it isn’t. Let’s look at some of the reasons many traders have a
hard time “cutting losses short.” First, it’s hard for any of us to admit we’ve
made a mistake. Let’s say a position starts going against you, and all your
“good” reasons for putting the position on still exist. You say to yourself, “it’s
only a temporary set-back. After all (you reason), the more the position goes
against me, the better chance it has to come back—the odds will catch up.”
Also, the reasons for entering the trade are still there. By now you’ve lost
quite a bit; you sell yourself on giving it “one more day.” It’s easy to convince
yourself; by this time, you probably aren’t thinking very clearly about
the position. Besides, you’ve lost so much already, what’s a little more?
Panic sets in, and then comes the worst, most devastating, and fallacious
reasoning of all: “That contract doesn’t expire for a few more months; things
are bound to turn around in the meantime.”

So it goes; don’t hesitate to cut those losses short. In fact, many experienced
traders say if a position still goes against you by the third day, get out. Cut
those losses fast, before the losing position starts to infect you, before you
“fall in love” with it. The easiest way is to inscribe across the front of your
brain, “Cut my losses fast.” Use stop-loss orders, aim for a $500 per contract
loss limit…whatever method works for you, use it.

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Let Profits Run.

Now to the “letting profits run” side of the equation. This is even harder because
who knows when those profits will stop running? No one does, of course, but
there are some things to consider.

First of all, be aware that there is an urge in all of us to want to win, even if it’s only
by a narrow margin. Most of us were raised that way. Win, even if it’s only by one
touchdown, one point, or one run. Following that philosophy almost assures you
of losing in the futures markets because the nature of trading futures usually
means that there are more losers than winners. The winners are often big, big,
big winners, not “one run” winners. Here again, you have to fight human nature.

Let’s say you’ve had several losses (like most traders), and now one of your
positions is developing into a pretty good winner. The temptation to close it
out is universally overwhelming. You’re sick about all those losses, and this
looks like a chance to cash in on a pretty good winner. You don’t want it to
get away. Besides, it gives you a nice warm feeling to close out a winning
position and tell yourself (and maybe even your friends) how smart you were
(particularly if you’re beginning to doubt yourself because of all those past
losers). That kind of reasoning and emotionalism have no place in futures
trading; therefore, the next time you are about to close out a winning position,
ask yourself why. If the cold, calculating, sound reasons you used to put on the
position are still there, you should strongly consider staying. Of course, you
can use trailing stops to protect your profits, but if you are exiting a winning
position out of fear (don’t), greed (don’t), ego (don’t), impatience (don’t), or
anxiety (don’t). If you are thinking about exiting a winning position out of
sound fundamental and/or technical reasoning…do.

Trading a sound, smart plan is the answer to cutting

your losses short and letting your profits run.

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19. You can avoid the emotionalism, the second guessing, the wondering, and the
agonizing if you have a sound trading plan (including price objectives, entry
points, exit points, risk-reward ratios, stops, information about historical price
levels, seasonal influences, government reports, prices of related markets,
chart analysis, and so on; follow that plan. Most traders don’t want to bother;
they like to “wing it.” Perhaps they think a plan might take the fun out of it for
them. If you’re like that and trade futures for the fun of it, fine. If you’re trying
to make money without a plan—forget it. Trading a sound, smart plan is the
answer to cutting your losses short and letting your profits run.
20. Do not overstay a good market. If you do, you are bound to overstay a bad
one also.
21. Take your lumps, just be sure they are little lumps. Very successful traders
generally have more losing trades than winning trades. They just don’t have
any hang-ups about admitting they’re wrong and they have the ability to close
out losing positions quickly.
22. Trade all positions in futures on a performance basis. Either the position
gives a profit by the end of the third day after the position is taken, or else
you get out.
23. Program your mind to accept many small losses. Program your mind to “sit
still” for a few large gains.
24. Most people would rather own something (go long) than owe something (go
short). Markets can (and should) also be traded from the short side.
25. Watch for divergence in related markets—is one market making a new high
without another following?
26. Recognize that fear, greed, ignorance, generosity, stupidity, impatience, self-
delusion, and so on can cost you a lot more money than the market(s) going
against you. Also, no fundamental method exists to recognize these factors.
27. Don’t blindly follow computer trading. A computer trading plan is only as good
as the program. As the old saying goes, “Garbage in, garbage out.”
28. Learn the basics of futures trading. It’s amazing how many people simply don’t
know what they’re doing. They’re bound to lose, unless they have a strong
broker providing guidance and keeping them out of trouble.

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Standing Aside Is A Position. Patience Is Important.

29. Standing aside is a position.

30. Client and broker must have rapport. Chemistry between an account
executive and client is very important. Pick a broker who will protect you
from your own worst inclinations: greed, ego, fear, and/or a subconscious
desire to lose (actually true with some traders). Ask someone who trades
if they know a good futures broker. If you find one who has room for you,
give him your account.
31. Sometimes, when things aren’t going well and you’re thinking about
changing brokerage firms, think about just changing your Account Executive
(AE) instead. Phone the manager of the local office, let him describe some
of the other AEs in the office, and see if any of them seem right for a first
meeting. Don’t worry about getting your AE in trouble; the office certainly
would rather have you switch your AE than to lose your business altogether.
32. Broker/client psychology must be in tune, or else the broker and client
should part company early in the program. Client and broker should be
in touch repeatedly, so when the time comes, both parties are mentally
programmed to take the necessary action without delay.
33. Most people do not have the time or the experience to trade futures
profitably, so choosing a broker is the most important step in profitable
futures trading.
34. When you go stale, get out of the markets for a while. Trading futures is
demanding, and can be draining—especially when you’re losing. Step back;
get away from it all to recharge your batteries.

Step back; get away from it all

to recharge your batteries.

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Thrill Seekers Usually Lose.

35. If you’re in futures simply for the thrill of gambling, you’ll probably lose.
Chances are that the money does not mean as much to you as the excitement.
Just knowing this about yourself may instill more prudence, which could
improve your trading record. Have a business-like approach to the markets.

Approach the Markets with A Reasonable

Time Goal.

36. When you open an account with a broker, don’t just decide on the amount
of money, decide on the length of time you should trade. This approach will
help you conserve your equity, and avoid the Las Vegas approach of “Well,
I’ll trade until my stake runs out.” Experience shows that many who have
been trading over a long period of time end up making money.
37. Don’t trade on rumors. If you have been, ask yourself this: “Over the long
run, have I made money or lost money trading on rumors?” If you have lost
money, stop it.
38. Beware of all tips and inside information. Wait for the market’s action to tell you
if the information is accurate, then take a position with the developing trend.
39. Don’t trade unless you’re well financed…so that market action, not financial
condition, will dictate your entry and exit from the market. If you don’t
start with enough money, you may not be able to survive if the market
temporarily turns against you.
40. Be more careful if you’re extra smart. Smart people very often put on a
position a little too early. They see the potential for a price movement
before it becomes actual. They become worn out or “tapped out,” and aren’t
around when a big move finally gets underway. They were too busy trading
to make money.

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Never Add To A Losing Position.

41. Stay out of trouble; your first loss is your smallest loss.

42. Analyze your losses. Learn from your losses. They’re expensive lessons; you
paid for them. Most traders haven’t learned from their mistakes because
they don’t like to think about them.
43. Survive! In futures trading, the ones who stay long enough to be there when
those “big moves” happen are often successful.
44. If you’re just getting into the markets, be a small trader for at least a year,
then analyze your good trades and your bad ones. You can really learn
more from your bad ones.
45. Carry a notebook with you, and jot down interesting market information.
Write down the market openings and price ranges, as well as your own fills,
stop orders, and personal observations. Thoroughly review your notes from
time to time; use them to help analyze your performance.
46. As the saying goes, “Rome was not built in a day,” and no real movement
of importance takes place in one day. A speculator should have enough
excess margin in his (or her) account to provide staying power so he can
participate in big moves.
47. Take windfall profits (profits that have no sound reasons for occurring).

48. Periodically redefine the kind of capital you have in the markets. If your
personal financial situation changes and the risk capital becomes necessary
capital, don’t wait for “just one more day” or “one more price tick,” get out
right away. If you don’t, most likely you will start trading with your heart
instead of your head, and then you’ll surely lose.
49. Always use stop orders, always…always…always.

50. Don’t use the markets to feed your need for excitement.

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DISCLOSURES

This material is reproduced with permission from the Walsh Agency, Inc.

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations
as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research
department as defined in cftc rule 1.71. Daniels Trading, its principals, brokers, and employees may trade in derivatives for their own
accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short
term vs. long term strategies, technical vs. fundamental market analysis, and other factors), such trading may result in the initiation or
liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options
can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume
responsibility for the risks associated with such investments and for their results.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.
You should read the “risk disclosure” webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels
Trading is not affiliated with nor does it endorse any trading system, newsletter, or other similar service. Daniels Trading does not
guarantee or verify any performance claims made by such systems or service.

Daniels Trading, 100 S. Wacker Dr., St. 1225, Chicago, IL 60606 1.800.800.3840