It is important to develop the skills to manage your risk when day trading futures. This often requires effective techniques that many investors typically do not have. Most traditional stock traders tend to buy mutual funds or stocks and hold them for lengthy periods of time, with only an occasional glance at current quotes. Day trading futures, however, rarely allows a trader to follow any buy and hold strategies since the price of commodities tend to fall and rise over time without the normal trending line that a traditional stock tends to follow.
The number one reason for managing risk is to manage your open positions to safeguard against potential loss. If you feel stressed as an trader, it may be that you are holding too many open positions. Most successful individuals only invest 1 to 2% of their monies in any given trade. However, a smaller trader typically is not provided the luxury of having such a large margin account. Instead, they must rely on savvy money management skills to reduce their risk and stress.
The worst kind of developed strategy for day trading futures is an all or nothing approach. Developing a profitable online trading system requires strict discipline and a well-thought-out, proven plan that uses technical analysis indicators and other day trading tools. Even a small account needs to be traded with great self-restraint and control to allow it time to grow in size, from the profits generated on well-informed decisions to buy or sell.
That ideal place to begin developing a system or strategy, especially for those that are new to trading and investing, is to follow a trend. Many profitable futures trading strategies are executed using commodity trading software programs that have the ability to follow trend lines. With enough time in front of the charts, a day trader will be able to easily identify an uptrend or downtrend in the market and evaluate the trading signal the indicator provides to make a buy or sell.
Many newbie and experienced commodity traders using technical analysis often incorporate extensive day trading indicators into their trading plan. Researching technical analysis will differ from fundamental analysis in that it will utilize historical price action as a way to predict the moving price of the commodity in the future. Alternatively, fundamental analysis usually focuses mainly on the expectations of supply and demand of a specific commodity, as a way to predict the action of a future price.
Managing risks when day trading futures is essential to increasing your portfolio. By understanding the best technical indicators and relying on proven commodity trading software that you have gone to the trouble of learning well, any trader can maximize their profits and minimize their risk.
For more from Erich, visit the Indicator Warehouse for additional futures resources and NinjaTrader Indicators.