How
to Make Consistent Profits
Trading Futures Part I
by Malcolm Robinson of
TheMasteryOfTrading.com
One of the mistakes I consistently made in my early years
as a trader was to try to make too much money in relation
to my trading capital. To make £1000 a day while
trading with £10,000 is absurdly ambitious; of course
I have done it many times, as would anyone with this intention,
but I have also gone bust on more than one occasion. To
have the aspiration of taking £1000 out of the market
each day, when trading with £10,000 or under is,
I think, a quick route to the poor house.
So what
is a reasonable objective for a day trader?
A few weeks ago I visited an ex-floor trader who has
set up a trading operation backing young aspiring traders.
I was interested to find out from him how he trains his
team. The essence of his approach is to give them a grounding
in discipline and confidence. He believes that confidence
is one of the primary keys to success in trading and that
confidence is a by-product of taking money out of the
market. One of the reasons he has chosen to work with
young traders is that he wants people who have minimal
financial commitments. He knows it will take a while for
them to start earning an income from the business. So
his belief is that if his traders can regularly take small
amounts of money out of the market, their knowledge, skills
and confidence will grow and in time they will become
bigger traders. What is critical about this approach is
that his traders do not grow in size until they have achieved
consistent, regular success on a small scale; and we are
talking small, I mean £25 or £50 in a day.
What can we learn from this low risk approach? Well first
let me ask you: what is more important, to make money
today, or to become a consistently profitable trader?
Because if we want to become consistently successful traders
we need to take a different tack than if we are just out
to make as much money as we can today.
So back to the question, what is a reasonable objective
for a day trader? Well let’s look at bringing our
daily target right down to £100, with £10,000
of trading capital, i.e. 1%. Now £100 a day, trading
a market like the FTSE seems an achievable target to me.
That is a net profit of 10 FTSE points a day. Can you
come up with a system that trades 5 times a day and has
an average net profit of 2 points? Or a system that trades
10 times a day with an average net profit of 1 point?
Is that a yes I hear? Because if you can make an average
of £100 a day you will double your money in 100
trading days i.e. 20 weeks or about 5 months. If you double
you position size every time you double your money, your
account will grow to £1,000,000 in 140 weeks, which
is less than 3 years! Of course this does not take into
account the impact of tax; but my point is that by taking
a low risk, conservative approach to trading objectives,
we give ourselves the chance to grow and develop into
traders, while also availing ourselves of the possibility
of a deceptively good return.
If at this point you are tearing your hair out and screaming
at the screen that I am a fool for suggesting that you
can trade a strategy that averages a few points a trade,
I assume that you are not familiar with the benefits of
direct access trading. Direct access trading effectively
gives everyone and their uncle the same low costs, immediate
trade execution and access as was exclusively enjoyed
by the floor traders before the advent of the electronic
market place. To learn about the advantages of direct
access trading...
Continue
to: How to Make Consistent Profits Trading Futures Part
II
Malcolm Robinson
Copyright © 2002. Malcolm E Robinson.
All rights reserved.
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