INDEPENDENT. OBJECTIVE. RELIABLE.
OUR 10 COMMANDMENTS OF
FUTURES TRADING
BY MARK HENDERSHOTT
& DREW WILKINS
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INDEPENDENT. OBJECTIVE. RELIABLE.
Our 10 Commandments of Futures Trading
All too often individuals will take up trading futures without a solid plan. New traders will often trade on
emotion and not discipline. We’ve found that simply trading on emotion is not the best way to approach
the market. That’s why we developed our 10 Commandments of Futures Trading.
Below are 10 commandments we feel are helpful to keep in mind before embarking on any journey in the
futures and commodities markets. The most important quality we see in a successful trade is discipline.
We designed the 10 Commandments of Trading Commodities to help you become a better, more
disciplined trader. Here at Daniels Trading, we try to instill these commandments in everyone with
whom we work.
1. Before placing any trade, have a plan, and literally write it down on a piece of
paper.
This may seem elementary but there’s a reason it’s first on the list. By writing the trade down, you will
minimize the possibility of a sliding profit or loss objective. As a broker, this is an emotional mistake
made by both novice and seasoned traders alike. Don’t beat yourself up if you have done this in the past
because we haven’t come across many people that haven’t; it’s human nature. Trading is a process, not a
just a one off possibility. Believe in your process, write it down, and stay committed.
2. Never add to a losing trade, unless it’s part of your mapped out plan.
If you have ever traded, chances are you have made this mistake. A common phrase used in the business
is “double up to catch up.” Everyone should strike this from their vocabulary because it’s one of the worst
mistakes you can make as a trader or investor. The ONLY reason to add to a losing trade is if it’s part of
your written plan.
3. Do not take a short-term position that is opposite of your long-term view.
This is very simple, if you think the market is posed to move higher longer-term, DO NOT initiate a short
position. If you make this common mistake, it will feel like you are losing twice. Not only are you losing on
the current trade, but you are losing on the position you will feel like you should have established. How
can you avoid making this mistake? As they say… patience is a virtue.
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INDEPENDENT. OBJECTIVE. RELIABLE.
Our 10 Commandments of Futures Trading
4. Do not trade in ill-liquid, overnight markets.
Most people are either exhausted or stressed out at the end of the day, which can impair your judgement.
So if you aren’t used to making crucial decisions in late hours of the day, wait until daylight arises to trade.
In order to place a trade, you need to be clear headed and focused on your goals. When emotions are the
driving factor, chances are slim that you will make the best decision. Some overnight markets are thin, so
if you NEED a fill, you might be paying over market price.
5. Do not over trade.
Sometimes the best trading decision is not trading. Trading just to have skin in the game is often a recipe
for losses. If a trade doesn’t meet your objectives or rules, don’t place it. Wait until you find a setup you’re
comfortable with before getting involved.
6. Never become married to your position.
As a trader, you need to evolve as the market evolves. If bearish news comes out and the market doesn’t
have a bearish reaction, then guess what!? It’s not bearish - so don’t be stubborn and try to outguess it.
Remember, the market can be “irrational” much longer than most people can remain solvent.
7. Do not get lopsided on your risk/reward.
Too often traders will risk way more on a trade than they’re looking to profit. Think about this for a
second; if you risk five times more on trades than you’re looking to profit, you’d have to have five winning
trades to make up for every losing trade. Those are pretty long odds, right? Don’t set yourself in a huge
hole right off the bat by risking way more than your ideal profit objective.
8. Listen to your gut feeling on trades.
Have you ever heard the saying, “Listen to your gut feeling?” It extends into all facets of life, including
trading. Your gut feeling in life is based on your values and how you view the world. The same goes for
trading. It’s likely that your gut feeling played a big role in your trading rules and plan. Stick to what your
gut feeling is and it will help remove unnecessary emotions from trading.
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INDEPENDENT. OBJECTIVE. RELIABLE.
Our 10 Commandments of Futures Trading
9. Do not over use leverage.
Know your margin to equity ratio or work with someone who can keep you in check. Leverage is what
makes trading commodities so lucrative and fun to trade when correct, and painful when wrong. Nothing
is more frustrating than having a margin clerk take control over your plan.
10. Keep some powder dry.
This falls under the same category as over using leverage. The reason I like keeping some powder dry, is
in case an opportunity that I wasn’t expecting arises I will be able place a trade to capitalize on it. Keeping
some powder dry allows you to capitalize on unexpected trade opportunities.
There are many more rules you can apply to your trading. Keep these in mind when entering a position.
They can help you trade with a clear head and keep you focused on your plan to profitability.
GET MORE INFORMATION
Mark Hendershott
+1 (312) 706-7618 Local / Int’l
+1 (312) 706-7518 Fax
[email protected]
Drew Wilkins
+1 (312) 706-7637 Local / Int’l
+1 (800) 958-9720 Toll-Free
+1 (312) 706-7537 Fax
[email protected]
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INDEPENDENT. OBJECTIVE. RELIABLE.
Our 10 Commandments of Futures Trading
DISCLAIMER
THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES
TRANSACTION.
THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES
RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR
HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS
TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71.
DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES
FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS
(SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT
TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS,
AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION
OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND
RECOMMENDATIONS CONTAINED THEREIN.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK
OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL,
AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING
LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED
WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.
YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN
LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE
“RISK DISCLOSURE” WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM
OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY
TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT
GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICES.
THE RISK OF LOSS IN TRADING COMMODITY FUTURES AND OPTIONS CONTRACTS CAN BE
SUBSTANTIAL. THERE IS A HIGH DEGREE OF LEVERAGE IN FUTURES TRADING BECAUSE OF
SMALL MARGIN REQUIREMENTS. THIS LEVERAGE CAN WORK AGAINST YOU AS WELL AS FOR
YOU AND CAN LEAD TO LARGE LOSSES AS WELL AS LARGE GAINS.
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