Trading and Money Management
Money management is the key to successful commodities trading. Trading requires discipline. In trading, we need to let the amount of money in our account dictate to us how we are going to trade. This is called trading within our means or… money and risk management. Money management is one of the most crucial and yet one of the most overlooked aspects of trading and investing. Even when it is not overlooked, it is often misunderstood and unnecessarily made overly complicated. There are several aspects of successful money management. They all share the same goal - to control our exposure to the markets. This is the only thing that we have complete control over in trading. Most futures traders focus solely on trying to maximize returns. In reality, however, no one can predict the markets. No one knows which trades will be the big winners and which will be the losers. Successful commodity traders focus on playing defense. They focus on keeping their money and staying in the game through the use of advanced money management techniques. In our commodities trading, we strive for one major accomplishment at the end of each year. Simply put… we strive to be able to continue trading next year. If you can consistently do this, you will make money trading... lots of money! We control our exposure to the markets on three levels: These levels of controlling market exposure apply to taking new trades. We also need to manage exposure on our existing trades. This is accomplished through: - Managing our trailing stops
- Resizing positions
- Switching positions
After we have incorporated sound money management strategies into our commodities trading, we can use some advanced money management techniques to enhance our returns. We can achieve this through: We can increase our edge by enhancing returns with these advanced techniques. Remember, however, that our main goal is to control and manage our exposure to the market. Enhancing returns using these strategies is only secondary. Many futures traders make this mistake and get a little carried away with trying to maximize their returns. There is a fine line between creating a greater edge and optimizing a strategy to the point that it will not work as expected in the real world. The core of our money and risk management strategies are built on most of these techniques. They create the foundation for controlling our risk. There is no need to overly complicate them. For the most part, they are common sense. Most traders however, to their own peril, choose to ignore management techniques. Why do they choose not to use them? Traders often get caught up in the emotions of commodities trading. Not only do fear and greed take control of their trading, but also hope and panic. It is impossible to be a successful futures trader when these emotions take over. Traders with wild emotions change their tactics consistently. This is a good way to lose your money. Nobody likes to play defense. Proper money management should be boring. We all want to catch that next big trade. But, we don’t know when it will come. We need to protect ourselves, stay in the game, and the market will eventually pay us for it. It also takes a lot of hard work and specialized trading platforms to calculate your exposures every day and make the required, necessary adjustments to positions in your account. If this was easy, everyone would be rich. Our strategies incorporate the techniques described above plus some additional highly-advanced proprietary money management and risk management strategies. It is a trading advantage that benefits our clients greatly.
See how we use advanced money management techniques in our commodities trading strategies.
Commodity Futures Trading Commission Required Risk Disclosure
Futures and options trading involve substantial risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this website be construed as an express or an implied promise, guarantee or implication by or from Commodity Trading Solutions LLC that you will profit or that losses can or will be limited in any manner whatsoever. Past performance is not necessarily indicative of future results. Information provided on this website is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.
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