Futures Trading for Beginners Part 3

When creating a trading plan for futures, it is important to know which futures market you will trade. I suggest to our novice clients that they keep things simple and select one or two technical setups to implement in the markets and focus on them initially. There are many futures markets to choose from with adequate liquidity for speculation, however when selecting a market it is important to choose one based on your account size, level of experience and investment philosophy. Above all it is important to be flexible; as each futures market can make big moves each year, recently it’s Gold and before that Crude Oil. Being flexible increases a traders probability of catching that big move that can make for a successful year.  

Important Factors When Choosing Markets
History is an important part of successful futures trading. The futures market that has more big trending moves are more likely to have them in the future as well. The following list represents some of the best trending futures markets:

• Currencies – Currency trading is the sector that trends the best. The best currencies to trade are the Euro, the Great British pound and the Japanese Yen. My favourite trending market is currency futures, historically when currencies start a trend they remain in one for a decent period of time.

• Agricultural – Wheat, Corn and Soy Beans being the main markets I trade, I suggest novices start with Corn or Wheat, as Soy Beans can be an extremely volatile market.  

• Energy Futures– Natural gas, heating oil and crude oil futures are all liquid markets to trade. Crude Oil being my favourite as you can choose from two contracts nymex big and mini contracts.
• Metals – Gold, silver and copper are traditionally the most traded commodities. I prefer to trade Gold as it responds more predictably to inter-market correlation, with USD and The S&P 500 Index

For traders with smaller accounts, I suggest trading mini gold futures and currency futures.

Now you have a short list of commodities to trade. The next step is to develop your trading plan. Below I offer some suggestions to get you started
Your rules could include:

 Define your max lose– I appreciate why many traders only focus on “how much they will make” when they first start trading. However knowing which percentage of your capital you are prepared to risk on each individual position will serve you better over time. I suggest 1% to a maximum of 3%.

Set Clear Guidelines – Your trading plan will be more effective, if you are specific and precise. You can always edit it at a later point, however initially select one or two entry setups and one or two futures markets in which you will implement them. This way you will offer yourself the time to learn whether a specific markets suits your personality. Before moving on to try another one

Back Testing – Technology continues to make incredible breakthroughs, you can now successfully test your trading plan. While no two market conditions will ever be the same, it does allow you the chance to reduce unexpected outcomes and understand how your system will perform. Testing will give you the confidence you need to be a successful trader. However never ever load the boat up for one position, if there is a “black swan” day your trading account could be reduced to tears and cobwebs as cash evaporates at an alarming rate, I should know I blew a trading account many years ago and I will never forget it.

 Finally start implement your system with confidence and caution when you’ve identified your target markets, develop, review and test your trading plan. If you would like to see how I manage my personal portfolio on a daily basis in our members area  register here for a 14 day guest pass to the GT members area.