Let me caution you against a practice I have witnessed on a number of occasions during my years in the futures market. It has become more and more common for individuals to borrow money in order to speculate in futures. Specifically, second mortgages or home equity loans are often used for this purpose.
I recommend you do not consider this foolish behavior. There is no sound judgment in such behavior
and the results of such actions can be disastrous.The individual not only places him or herself at financial risk, but jeopardizes his or her trading by using funds that should not and cannot be placed at risk.
Certainly it takes no great insight to see that the trading decisions of the speculator will be based on
fear and this will seriously affect his or her judgment.
Another pitfall to avoid is the following mental trap: “I’ll put more money into my account than I intend to lose, but the rest will draw interest and, of course, I will watch the money closely.” As I explained, this is a rationalization based on unrealistic thinking.Even with the best intentions, when “extra” money is in the account, chances are it will be used for trading. Put into your account only what you can afford to lose in its entirety.
Don’t be fooled by the lure of interest rate earnings on the unused funds, especially low-risk trading programs, fail-safe programs, “no risk” option strategies, minimal risk spreading programs and a host
of other seemingly simple “minimal risk” programs.I’ve seen them come and I’ve seen them go. There are some big winners, but there are many, many more big losers. Do not accept the claims of any trading system, your own or that of someone else, as the basis for deciding how much of your money you will place at risk.
Reach Your Goal by Stages
The most fruitful and consistent means to achieve a goal is through stages or steps. Unfortunately, or
perhaps fortunately, our dimension in time and space does not permit thoughts to become actions
instantaneously and, therefore, goals must be attained slowly.Whether you decide to trade for the short, intermediate or long term, it is advisable that you regularly withdraw profits from your account once you have reached a certain level of successful performance.
Generally, I recommend 10 to 25% of profits be removed from every winning trade in your account.
This need not be done on a trade-by-trade basis. You can do it weekly or perhaps bimonthly, but
remember to do it!More speculators would be successful if they approached futures trading as though it were a business.After a period of teaming and initial cost, a business that reaches the point of profitable operation will generate income for its operators. The profits are then taken and employed in some other fashion not directly connected with the business itself. Some of the other profits are turned back into the business
in order to expand its base.It is the same with futures trading. On occasion, speculators have achieved tremendous initial growth in their accounts. Lured by greed and the promise of even greater profits, they have plowed every penny, if not more, back into the market, only to lose it all. When all is said and done, they have nothing to show for their great efforts.
This is why you must formulate and institute a specific program for systematically removing a percentage of your profits from your, trading account. This rule is applicable whether you are speculating for the long-, short- or an intermediate-term time frame.In addition to the points just raised, a number of important issues warrant attention from all aspiring futures traders, regardless of their eventual orientation, system, or trading methodology.