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Professional Futures trader and educator.
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  • Emini S&P Trading: Appreciate Your Limits 0 comments
    Sep 21, 2010 12:52 AM
    By: Jeff Niles

    The longer you've been in the e-mini trading game the more you've heard about how important money management is to profitable trading. Consistent profits aren't just about following a good strategy or being able to read the charts properly. Profitable traders are also acutely aware of their money management techniques and have developed systems for ensuring that they aren't over exposing themselves to the markets.

    Leverage can be a tool and a threat in the e-mini markets. Novice traders often misunderstand how to put themselves in a position to benefit from the increases in leverage of the future markets vs. the traditional stock market environment. Over exposure to the market on small accounts can lead to fatal endings if other money management techniques aren't in place. E-mini contracts tend to move very quickly and if you don't have systems in place to ensure your safety you too may feel the negative effects of over exposure.

    How can prepare for long term profitability in the e-mini futures markets through proper money management awareness?

    1. Conservative Sizing

    Position size is often where novice traders get themselves into trouble. The day trading margin requirements for futures is extremely low and traders think that if they have the capability to trade large amount of contracts then they should. Nothing could be further from the truth. New traders should be trading as small as possible until they prove their competency in the instruments. Trading the e-mini markets requires a different approach than stocks and options and even veteran traders can make position size mistakes.

    2. Stop Placement

    Stops are a traders best friend. IF a trader tells you they don't use stops they are either lying or they are incredibly foolish. A quick review of daily trading over the past few months will show you that violent price swings are the norm rather than the exception when it comes to e-mini trading. Using stops allows you to fully understand how much money you stand to lose should the trade go completely against you. You can then use that knowledge to decide whether or not there is enough upside in the trade to initiate that position.

    3. Risk Appetite

    Being realistic about your returns will help to gauge how much risk you should be willing to take on each individual trade. Know your risk tolerance before you place any trades. Focus on becoming profitable with small trades and then slowly ramping up your sizing until you are comfortable with the risk : reward ratio. Each trader and each account size is different and there is no golden rule in risk tolerance levels. Remember to start small and work your way up. There is no need to jump in head first and get burned right away, the market will be there tomorrow.

    Understanding your trading and capital limits will prolongate your futures trading career. Over exposure and being over leveraged can lead to very negative results in your trading accounts. Focus on developing a plan that will allow you to benefit from the good trades and not need to worry about the bad trades. Starting off on the right foot can save a lot of time and hard earned capital. 

    E-mini Trading taken to a whole new level. Understand how and why the market moves. See how you can benefit from trading education. 

    Disclosure: No Positions
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