Many who trade futures successfully rely on a trading plan. Just like how a business plan outlines the establishment and development of a proposed business in detail, a trading plan outlines, in detail, a structure for trading. There are two major components of a trading plan: A method of price prediction, which signals if and when to buy or sell a particular futures contract, and a risk management, which dictates the amount of money to risk on a trade and specifies when to cut losses.
Trading plans are fluid in the sense that they are being tested constantly and amended to improve overall performance and profitability. Strict observance of the rules of the trading plan is the hallmark of a successful futures trader. Beginners should consider testing their trading plan in a paper trading account prior to risking actual money.
Profit on a futures trade is earned if you buy low and sell high, or sell high and buy back low. While simple in concept, this requires you, the trader, to have some idea of where prices will be several weeks or months from now. That is, it requires a price prediction methodology. Most traders tend to rely on some variation of fundamental or technical analysis to predict prices. Many also spend considerable time and energy attempting to identify new measurements or signals that provide the edge in predicting prices. Stories abound of traders who claim to have discovered proof-positive techniques for predicting prices and then offer to sell the information to you for a price. Be careful and skeptical of such claims.
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